Author Topic: How taxes and debt upend the 4% retirement rule  (Read 3988 times)

Frizhand

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How taxes and debt upend the 4% retirement rule
« on: April 01, 2015, 06:05:28 AM »
I thought this article was some good comedy. 
http://www.marketwatch.com/story/how-taxes-and-debt-upend-the-4-retirement-rule-2015-04-01?dist=beforebell

He starts with the false premise that the 4% rule applies to your savings (or course it doesn't, it applies to your net worth). Basically, the authors argument is 4% doesn't work if you have a lot of debt or want to spend a lot of money (like 50K on a car and home remodel). Shocker. 

NYExpat

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Re: How taxes and debt upend the 4% retirement rule
« Reply #1 on: April 01, 2015, 06:38:25 AM »
The first line of his article should have said, "If you have any kind of debt YOU DON'T RETIRE!!!" But it you make minimum credit card, mortgage and student loan payments, you might still be in debt come 65...

LalsConstant

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Re: How taxes and debt upend the 4% retirement rule
« Reply #2 on: April 01, 2015, 06:39:26 AM »
Wow that is silly.  The RMD is a made up number for regulatory purposes.  Seriously.  Don't give it meaning it does not have.

The 4 percent rule assumes you're debt free in the first place in its common usage.  If your debts are not paid why are you retiring?  Obviously I am not talking about scenarios where investment properties etc. are involved but that's different, that would be the 4 percent of net worth consideration.

Look I am a right leaning small government anti tax person but even I admit that for the majority of us US citizens who don't really make that much by post industrial standards, we can effectively set our own personal tax rate.  We might not like what we have to do in order to manage this and it is needlessly complex to do so but it is an option.

forummm

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Re: How taxes and debt upend the 4% retirement rule
« Reply #3 on: April 01, 2015, 08:01:51 AM »
Apparently you don't need to actually know anything about a topic before you can write an authoritative article on it and post it online.

SaintM

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Re: How taxes and debt upend the 4% retirement rule
« Reply #4 on: April 01, 2015, 08:03:36 AM »
Marketwatch tends to equate "savings" with "net worth," with the idea that one depletes assets by the end of their life expectancy.  Then in other articles, Marketwatch posts bold headlines that most people die broke.

Let's face it, Marketwatch is supported by Wall Street advertising.  The more the website encourages people to "save" more, the more goes to mutual funds, which turn around and advertise more on the website.

UnleashHell

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Re: How taxes and debt upend the 4% retirement rule
« Reply #5 on: April 01, 2015, 09:46:52 AM »
did he get paid for that pile of garbage?

SpicyMcHaggus

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Re: How taxes and debt upend the 4% retirement rule
« Reply #6 on: April 01, 2015, 10:38:46 AM »
TLDR;

But i think he is saying that the 4% SWR on 100k would be 4k. Except that doesn't account for massive downturns.  I would tend to agree.


Avidconsumer

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Re: How taxes and debt upend the 4% retirement rule
« Reply #7 on: April 01, 2015, 11:11:45 AM »
This is really a case of the 4% rule being incorrect, but rather the assumption about the amount needed in order to retire. I think the standard assumption when using the 4% rule is that there won't be any unforeseen costs in the future/taxes aren't included etc..

rpr

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Re: How taxes and debt upend the 4% retirement rule
« Reply #8 on: April 01, 2015, 11:30:10 AM »
The writer does discuss how much you need if you have other debt to pay off such as mortgage as well as other one time expenses. Obviously, folks in this forum are well aware of these issues but the general intended reader of that article or website may not be as familiar with the concepts.


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Eric

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Re: How taxes and debt upend the 4% retirement rule
« Reply #9 on: April 01, 2015, 12:03:04 PM »
I like how in the example, the retiree needs $20k per year.  And then when they pay off their mortgage, they still need $20k per year.  And of course, that $40K kitchen remodel.  Don't forget to include that.  Ugh.

MDM

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Re: How taxes and debt upend the 4% retirement rule
« Reply #10 on: April 01, 2015, 01:34:33 PM »
The article starts poorly.  No, the 4% rule does not imply that savings will be nearly exhausted at death.  The "rule" instead "guarantees" that savings will not be exhausted - but may well be very large.

After that, however, it seems a good summary of many issues that people should understand when looking at "am I FI?"

E.g., a 4% SWR is based on a 30 year retirement.  Seems reasonable that a somewhat lower figure would apply to a longer retirement and vice versa.  The RMD tables may not be perfect but at least take one qualitatively in the right direction.

Comments in the article about expected one time large expenses and allowing for taxes also seem correct.