Author Topic: Frugal living generated substantial nest egg; will new tax changes crush it?  (Read 4683 times)

grue

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Life Situation: 50, Male, Single, No Dependents, California, USA.

Annual Gross Income from Job: $400,000 ($200K Salary + $50K Bonus + $150K Stock Grants)

Other income:
- Rent portion of home to a tenant:  $1,750/month
- Taxable brokerage dividend yield: ~$1,500/month

Assets:~$10M
Taxable Brokerage:$5,750,000 (Unrealized long term capital gains: ~$3M)
401Ks + Rollover IRA:$2,250,000
Roth IRA$250,000
HSA$50,000
Checking/Savings$10,000
HCOL 3BR/2BA Home~$1,750,000 (No Mortgage)
24 Year Old (but works!) Car~$200 (Based on what a dealership offered me ~4 years ago when I considered trading her in -- so I'll drive her for as long as I can depend on her!)
.
Debts:$0
.
Monthly Expenses~$2K
Property Taxes$1,100 (“Low” relative to home value due to California’s Prop 13)
Groceries$200
Electricity/Gas$120
Water/Trash$95
Gasoline$65
Internet$30
Car Insurance$25
Miscellaneous$200
.
Monthly Non-Expenses(For completeness)
Home Insurance$0 (Don’t have any; probably dumb. Replacement cost: ~$500K [unskilled guesstimate])
Cell Phone$0 (Employer provided; if paid myself: ~$100?)
Health/Vision/Dental Insurance$0 (Employer provided; if paid myself: ???)
Disability/Life Insurance$0 (Employer provided; don't need after leaving workforce?)
Streaming Services (Netflix, HBO Now)$0 (Tenant shared their accounts in exchange for "free internet/utilities")

Unrealized Plans:

- Find out how much health/eye/dental insurance costs when “you’re paying for it yourself.”
- Relocate from California to a less tax-hungry state (eg, Nevada-side of Lake Tahoe) before realizing capital gains within taxable brokerage.
- After relocating, sell majority of individual equities in taxable brokerage (over time, as “tax-efficiently” as possible), in favor of “less risky” Vanguard ETFs.
- After relocating, maintain ownership of California home and rent it out to a stable family at market rates (~$4K/month).
- If I find myself out of a job in a “low-income” situation, do annual “tax-efficient” 401K->Roth conversions.
- Possibly change jobs to an employer that will allow post-COVID remote-work in order to relocate while still gainfully employed.

Big Worries:

- I’ve been lucky/blessed to have squirreled away what I have by living frugally, but don’t “feel rich” at all.
- I’ve always said “no” to any avoidable activity that generates taxes.  Now I’m worried about taxes going up and if I should take any action now, even while living in California.
- I don’t have any financial advisors (and don’t want one that charges AUM fees).  I don’t know if a “one time guy” will help with tax-planning; I have a feeling they’ll just charge ${X}K to say “diversify” which I already know I should do.
- All the recent talk about “taxing the wealthy” scares me because I seem to be “just over” the low-end of the forthcoming tax changes (eg, the “unless you make over 400K, you've got nothing to worry about” statements).

Question:

- Have I created a tax-bomb?  Can it be diffused?

Gin1984

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Honestly, the taxes won't even effect your lifestyle, based on your spending.  Not having home insurance and getting a big lawsuit, however... That could actually crush you.  Focus on that one first.

erutio

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Can it be diffused?

Easily.  Donate it to charity.

nereo

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Agree with Gin. Your greatest financial threat isn’t taxes. You have way more than you need and a substantial amount in Roth, HSA and cash. The likelihood of those being taxed (IMO) is very low. Even if it does get a tax sur-charge of a couple percent it won’t change your FI. You shady have enough for a Roth Ladder.

Time to consider more disruptive (and likely more probable) threats to your assets.

We be free if we try

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Hi, I’m hearing that you’re worried about taxes, while you have $10m in assets, and spend $24k/year and drive a decades-old car? You might want to consider why you’re worrying about finances at all? Are you planning to bump your spending up to $250k/year? You can sell off the individual stocks at whatever speed you want. Would you consider speaking with a therapist, who can help you look at retiring as soon as you feel comfortable, and how best to enjoy your time?

Sid Hoffman

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24 Year Old (but works!) Car~$200 (Based on what a dealership offered me ~4 years ago when I considered trading her in -- so I'll drive her for as long as I can depend on her!)

I've mentioned it before so I'll be brief. Car accidents are the #1 accidental cause of death for nearly all age ranges and cause 3 million serious injuries per year in the USA. Cars from the 90s were from before any had side impact airbags or crash structures to mitigate so-called small overlap collisions that cause so many needless injuries and deaths. The side impact airbags in particular provide a level of protection from traumatic brain injury due to your head slamming into the steel frame of the vehicle when T-boned by another car. $10 million won't do you any good when you've got a TBI and the equivalent of a 65 IQ afterwards.

I'd at least buy something 2010 or later. I don't say it to be snippy either, I say it because you've clearly worked hard for a lot of years to get where you are. I don't want you to be robbed of the joy in your life by such a preventable yet extremely common injury. All of us tend to have risk blindspots. I think this forum is a great way for all of us to share what we know and help minimize each others' blind spots. Talking about car safety is kind of a personal subject to me, with two of my own friends having been permanently injured in car accidents. So it's an area where I hope to be a help to others by talking about the subject and the reality of the statistics.

I've been helped so much by other members of this forum in illuminating my own blindspots, so I hope to be a help to others too.

scantee

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This sure does seem like a troll.

It doesn’t matter if taxes go up. You have way more than enough and I think you know it. Focus your time on figuring out what you want to do with your life and and wealth. It seems that you’ve spent so much mental energy on saving that you don’t have a well-developed sense of self outside of that goal.

Echoing that you would benefit from seeing a therapist. Maybe ask this question on r/fatfire as that audience should have some sympathy for your plight.

Abe

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Regarding your worries:

Big Worries:

- I’ve been lucky/blessed to have squirreled away what I have by living frugally, but don’t “feel rich” at all. You are. Dunno how to make you feel a certain way. Maybe charter a yacht to take you to Cabot! Better yet, donate $100k to a charity and crush your taxes for the year!
- I’ve always said “no” to any avoidable activity that generates taxes.  Now I’m worried about taxes going up and if I should take any action now, even while living in California. I don't think the tax changes that are currently seriously proposed will change things much. I do agree you'll need to move before realizing your LTCG because (as I'm sure you know) those are taxed as ordinary income in California. Otherwise small increases in marginal tax rates won't really affect you. I'd honestly just ignore those. <shrug>
- I don’t have any financial advisors (and don’t want one that charges AUM fees).  I don’t know if a “one time guy” will help with tax-planning; I have a feeling they’ll just charge ${X}K to say “diversify” which I already know I should do. Probably. Read J Collins' stock series, read about asset allocation and chose some index funds. Start with the retirement accounts to avoid a big tax hit. May need to just hold on to the taxable accounts and ride out whatever volatility those will have until you move out of state.

- All the recent talk about “taxing the wealthy” scares me because I seem to be “just over” the low-end of the forthcoming tax changes (eg, the “unless you make over 400K, you've got nothing to worry about” statements). Again, the effect from a marginal tax increase will not be noticeable at your income level. The LTCG tax increases would be mathematically, but probably not practically. Wait on realizing those until you put down the firehouse of money and drop several tax brackets.

grue

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Thank you for responses:

Quote from: Gin1984 and nereo
Not having home insurance and getting a big lawsuit, however... That could actually crush you.

Agreed about a lawsuit (eg, someone tripping on the sidewalk out front and breaking a leg) -- that has been a concern.  When I first bought the house and looked into insurance, I had issues with all the company-friendly loopholes (earthquake and flood "outs"), dog-breed questions (I have a rescue mutt, so the only "safe" answer is "maybe" -- which is the equivalent of "yes" to the insurance company), and tenancy questions: so I just closed the browser windows and said "not for me!"  ...but I see now that not having insurance is leaving myself open to risk that could hurt (if not sink) me.  I need to treat homeowners insurance as "cost of doing business" like I do with car insurance.  Will correct that shortly.  Thank you.

Quote from: Sid Hoffman
All of us tend to have risk blindspots.

Agreed as well -- I put regular effort into maintaining the car (engine, tires, and brakes over cosmetics), but she is not as nimble as she used to be: joints/components I don't have the skills to address are probably in need of maintenance. 

I have set aside money for a replacement, but haven't acted yet.  I'll take your words as a pointer that "its time."

Quote from: erutio
Donate it to charity.

I was hoping to do exactly that -- but after death -- when I won't have to worry about taxes anymore! :-)

Quote from: We be free if we try
Would you consider speaking with a therapist [...]  Are you planning to bump your spending up to $250k/year?

Therapist: too expensive (haha)!  ...but given how I had to support my Dad in his final years (they retired wealthy, my mom passed, and he remarried someone who had a very extravagant lifestyle and ended up spending all his savings in less than a decade -- when he got sick, in the end, I supported him to the tune of hundreds-of-thousands-of-dollars for his final 3 years), maybe a therapist would be appropriate!  Note: I don't hold "me having to help" against them -- I just wish (for everyone involved) they had prepared better.

I do admit to having overblown concerns about "preparing for the unknown" -- and have been willing to risk "over-engineering" the solution (eg, being able to say "Even if my portfolio drops 50%, I'll survive").  FWIW, I believe I'm "FI" now -- even if I ultimately have to pay $1.35M taxes on $3M in LTCG (versus $450K-$600K).

Quote from: scantee
Focus your time on figuring out what you want to do with your life

Agreed - another of my problems is that I don't seem to have any larger goals than "working for a living" doing what I do. 

Were I to quit my job, I'd just do the same stuff as a hobby at a smaller scale (with fewer "professional toys" than I have access to now).

...maybe with fewer deadlines, less people management, and more camping trips! :-)

reeshau

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- I don’t have any financial advisors (and don’t want one that charges AUM fees).  I don’t know if a “one time guy” will help with tax-planning; I have a feeling they’ll just charge ${X}K to say “diversify” which I already know I should do.


A CFP won't give you tax advice unless they are also a CPA or at least a registered agent.  But, they probably know someone to work with, so It's a start.  A one-time financial plan should be $1,500 or less, which is miniscule for your assets.  And the CFP *will* talk you through insurance (without selling it) which you do seem uncomfortable with.  You are right to look for a fee-only CFP.

You have a tenant, so if the worst happens, think that you owe them a place to live, too.  (Even while you are rebuilding) And very few insurance companies will give a liability umbrella without underlying homeowner's insurance as a base.  You need to talk with a CFP that you can get comfortable with.

As others have said, you have ridiculous savings vs. your expenses.  Put $2M in a donor-advised fund, and any time you creep back up to whatever the limit will be, put the surplus in the fund again.  It's nothing to be worried about.

You have posted $25k expenses.  Let's double that.  By common standard here, you can retire on $1.25M.  You have 8x your FIRE amount.  Start worrying more about protecting it than growth, and things that are more scarce to you than money.

Or offer up a lottery to adopt 20 Mustachians.  They will probably be handy around the house.



And yes, please do get a safer car.  It doesn't have to be fancy, just newer, as @Sid Hoffman said.

kei te pai

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Why does tax scare you so much when you have all you need and much much more?

MudPuppy

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That’s my question, too. Why are taxes such a boogey man for you?



MrThatsDifferent

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Dear god! 10m and you live like you have nothing. Or you live as if you have everything you need. Anyways, make sure you do a will and estate planning, you’re going to leave a massive nest egg. Just, you’re 50, you’ve got at most 30 years to do almost anything you want, so love your best life as you have every means to do so. Money will never be an issue for you. Love, and if you’re too scared to access it while alive, please use it wisely when you’re gone. And, if you need any guidance, answer this question for yourself: what would you do if you weren’t afraid?

yachi

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will new tax changes crush it?
No. 




The tax basis in the taxable brokerage is more than enough to support the lifestyle costs you presented.  So even if capital gains would be taxed at 100%, the portfolio would survive.

We be free if we try

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“ Agreed - another of my problems is that I don't seem to have any larger goals than "working for a living" doing what I do. 

Were I to quit my job, I'd just do the same stuff as a hobby at a smaller scale (with fewer "professional toys" than I have access to now).

...maybe with fewer deadlines, less people management, and more camping trips! :-)”

I get that I’m just an Internet stranger, who doesn’t know you at all, so I am presuming a lot based on 2 posts, but I urge you to re-consider: that you actually can afford to see an excellent therapist (find a great one - there are many not-great therapists). That the MUCH bigger risk than running out of money, for you, is getting to the end of your life only to discover that you haven’t created your own “passionate love story” - and perhaps this is not with another human. Maybe it’s with the forest and mountains, or whatever moves your soul.

Not that a therapist is the only way, but they can help you remove the internal filters that might be keeping your mind focused  on certain negligible issues, when a much grander possibility awaits your attention. What or whom do you truly love?

Roots&Wings

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"How to Retire Happy, Wild, and Free" by Zelinski comes to mind, maybe see if your library has a copy. 

Have you run the numbers to see how much transitioning to ETF's under proposed new cap gains tax changes would impact your situation or just keep? Obviously you'd never want to realize the full $3MM LT cap gain in a single tax year. If you haven't posted this on Bogleheads, you'll get some additional perspective on the investing questions there. 

Get a quote on umbrella insurance for the catastrophic trip/fall scenarios too. Unsure if you're required to have homeowners, or if umbrella would cover without homeowners if you'd rather self-insure the bricks/mortar. 

Another vote to upgrade your car to a newer used model that you can have for the next 25 years before any major issues start. I just did that (carfax used car listings are great) and despite having some anxiety over spending ~1% of my net worth on the new car, am very glad I did! Car insurance surprisingly went down.

Omy

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I'm surprised you aren't getting more face punches, OP.

Taxes are very easily managed since you don't need to generate much income to maintain your lifestyle.
In 2020, we had $100k in income ($50k of that was Roth conversion) and we had a 6% effective tax rate. Without the Roth conversion, it would have been less than 1%.

You may want to consider Overfunded Life Insurance if you are trying to protect more of your assets from future taxes. I saw a brief webinar, and these policies allow you to protect assets from taxes...and allow you to take "loans" out that are tax free and don't have to be paid back. There are also LTC riders that can protect you should you need it in the future.

You have 3-10 times the stash that most of the FIREd folks have in this forum. Your withdrawal rate would be .25% when the most conservative of us are using a 1-2% withdrawal rate.

You don't have a tax problem, you have a confidence problem. I did as well until I FIREd and realized that we have more than we'll ever need (2 of us are thriving on a stash that is less than half of yours in a HCOL area).

Ockhamist

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Heavy sigh on the taxes.

All the proposals I've seen, and all the proposals that are likely to gain enough steam to pass, affect the *marginal* rates for high earners.

So if "you've got nothing to worry about if you make less than $400,000" holds, that doesn't mean you've got lots to worry about if you make $410,000.   It means you've got $10,000 to worry about, and even then, your worry is having to pay a higher tax rate just on that $10,000.   Sorry, but if you're making that kind of dough and a possible higher tax on the extra you are making above that threshold is keeping you up at night, you really need to get a grip.

I'm not saying taxes don't matter and I'm not saying you shouldn't make every prudent legal move to minimize them.  But with $10,000,000 in assets and $400,000+ in income, you don't have too many money worries.  You wouldn't even if you weren't frugal.  So don't dream them up. There's no monster under the bed; sleep well and be happy!  Even if tax rates somehow got bumped all the way up to where they were under Saint Ronald or even that raging bolshevik Eisenhower, you're hardly going to get crushed.

Don't let the screaming ideologues get to you.  Even if you do no planning at all and make no tax avoidance moves whatsoever, the sky's not falling on you. You've done great so far, and you're going to be just fine.
« Last Edit: May 03, 2021, 10:22:32 AM by Ockhamist »

seattlecyclone

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I fully agree with all those above who say you're worrying too much about taxes—and if you've read any of my previous posts on the topic, you'll know I put a lot more thought into tax avoidance than a lot of folks do.

The last proposal I read about capital gains was that the Democrats want to add a new marginal bracket at the $1 million level, where the capital gains above that level would be taxed at the same 39.6% rate as regular income. If that passes (a big if!), and you realize more than $1 million of gains in a single year, you'll pay more taxes than you would today. Avoiding that is simple: just keep your income less than $1 million! With your spending that should be no hardship at all.

Your concerns about having enough are also overblown. You could convert your taxable account to super safe inflation-protected bonds, pay the tax on $3 million of capital gains all in one go at a 50% rate, triple your spending after that, kick out the tenant from your home, and still have enough to make it to age 100. That's without even touching the retirement accounts!

You have enough money to leave your job and do basically whatever you want for the rest of your life, even if that thing is just using your current work skills on personal hobby projects (and buying whatever "professional toys" you need to really rock that hobby).

Roots&Wings

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Also, when do you receive your $150k stock grants? If you aren't already selling those immediately upon receipt, that's another option.

Simpli-Fi

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Quote from: erutio
Donate it to charity.

I was hoping to do exactly that -- but after death -- when I won't have to worry about taxes anymore! :-)

Read 'Die With Zero'

there is no reason to wait until your are dead.

AccidentialMustache

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Nobody else called it out, but there is about zero chance that a house worth $1.75 million is going to cost 500k to rebuild. Quite possibly the opposite. I only have homes in a sleepy midwest market, but all the homes I have here have an estimated rebuild cost over the "market value" of the home (eg, what we paid for it/the assessed value). And by over I mean "substantially so." The home I live in is estimated at north of $500k to rebuild and we bought it for around half of that, just a couple years ago.

You have enough assets that an umbrella insurance policy might not be out of line, on top of homeowners. Get quotes from multiple companies and go with who treated you right rather than the cheapest. I use USAA for this (dad was navy). I know I'm paying more than dad is (USAA has tiers and non-service members are the most expensive tier; officers are the least), but they're not out to make a buck off me and have generally treated me fair, even in claims. Their contracted adjusters in my area won't give you everything, but if you push back on USAA with documentation, we've had success getting the adjuster's gaps closed.

grue

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Thanks all to who have responded — grouping all the “why are you so hung up on taxes” questions:

Been thinking a lot about my “tax avoidance” nature — probably much of it is better directed to a therapist than here: but for what its worth, I think I grew up watching a lot of people (family, their friends, and later in life: the people I know that own small (and sometimes not so small) businesses).  A lot of the things they do (“company cars”, “company boats”, “corporate gas cards”, “company trips”, “company country club fees”) to “avoid taxes” has not been available to me (as a W2 earner instead of a business owner).  They don’t think “only suckers pay taxes” but they do think “only suckers don’t structure themselves to pay the minimum” and that’s been pounded into me.

The only “tax avoidance” lever I’ve had is “don’t generate taxable events” — which does guide my life (eg, one of my arguments for not making a big purchase like a new car was CA sales tax).

Anyway, I guess I need to face facts that “taxes are unavoidable and I shouldn’t sweat them.”

Quote from: Abe
Otherwise small increases in marginal tax rates won't really affect you. I'd honestly just ignore those.

Agreed - one of the things that caused me to post was Washington state beginning to tax capital gains (proposal has been around for years — but recently it looks like it has started to happen).  Washington and Nevada each have their pros/cons for me, but I might choose “coastal” WA over northern NV if taxes weren’t an issue.

With the WA changes, I was thinking "if they got WA, it's just a matter of time until they get NV..."

Quote from: MrThatsDifferent
Or you live as if you have everything you need. […] what would you do if you weren’t afraid?

I’d lean on the “everything you need” side -- based on my "naturally frugal" personality.

When I have gone on family trips (where I’m not in control of the costs), I didn’t feel a big value multiplier in the “fancy waterfront hotel” experience (versus the “Motel 6 nearest the beach” I’d choose if I was on my own).  When traveling abroad (when that was possible), I'm too old for hostels now -- but I aim for activity-convenient Motel 6's than Ritz-Carltons (even when I'm traveling on the company's dime!).

Still thinking about your “what would you do if you weren’t afraid” question.  Didn’t realize I was afraid — but maybe there’s some “prep for the worst” fear.

Quote from: We be free if we try
What or whom do you truly love?

Will keep gnawing on that question as well!  I’m happy about being FI (under most scenarios).  I am happy I’m healthy — but I should put more into that.

Quote from: Roots&Wings
“How to Retire Happy, Wild, and Free”

Reserved the book; will get it this weekend.  For your stock grant question: as they vest (monthly), they get automatically sold, and I get about half the proceeds (the other half retained by the company for taxes).  I dollar-cost VTI with the proceeds.

Quote from: Omy
You don't have a tax problem, you have a confidence problem.

Will put that observation in with the other “life” questions I need to think more about (over taxes).  Thanks!

Quote from: AccidentalMustache
house worth $1.75 million is going to cost 500k to rebuild

When originally looking at insurance quotes (about 7 years ago), I built that $500K mental number based on the “Coverage” limits I saw:

I think it came from “Coverage: Dwelling” (~$350K Limit) plus  “Coverage: Personal Property” and “Coverage: Loss of Use” to get to that $500K number.

Did I make some bad assumptions there (before they went out of date)?  It’s not a big place: 1200 sqft — the “value” is the land.  7 years ago it was worth $900k (and that was expensive!).  50 years ago it was $20K! :-)

Thanks to everyone that responded.  This has been very enlightening for me (“helping with blind spots”).


nereo

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I'm glad you came back and posted those responses @grue - you've been given a lot of thoughtful advice and it helps to move the conversation along.

One thing that's still not clear to me is why - with your assets - you would move to another state just (or primarily) to avoid taxes.  Let me be blunt:  Your assets are such that taxes shouldn't be a primary concern.  You can live your best life anywhere, even in high-tax California, even if they pass substantial tax hikes.  You've won the game.  Consider this thought experiment:  Where would you live if money was not a consideration?  Because frankly, for you, money is not a limiting factor.

It's prudent to reduce your taxable burden as low as possible (while remaining legal and feasible).  But it's NOT prudent to limit what kind of life you want to live because of taxes, particularly when you have way, way more than you need. It sounds like tax avoidance has gone from being a smart strategy to being almost an obsession.  strategies are good - obsessions typically are not.

As is, you've already "primed the pump" for a Roth conversion ladder, and your spending is low enough that you ought to be in the single-digit tax rate once you stop working. 

Laura33

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I'm going to second (third?) the recommendation for a therapist, because you are letting early messages drive you in ways that are actually counterproductive to happiness.  Your reality is:

- You could live in the highest-tax state and still have more than you'd ever need.
- You will NOT owe $3M in CG taxes, because you will not cash in everything all at once, but even if you did that AND lived in the highest-tax state, you'd still have more than you'd ever need.
- Any tax changes will be at the margins, because the Senate is divided, and the conservative Democrats are not going to approve any dramatic changes that would get them voted out of office. 
- If there are tax changes, you WILL NOT even notice them.  I can attest to that, because we were high-income during the Obama tax increases, and I didn't notice a single penny -- our income significantly exceeded our needs, so even though we paid the 3.8% whatever and went into a higher tax bracket, the difference was lost in the noise. 

I could go on and on, but the short version is that there are many, many objective facts out there, from verifiable sources (and math!) that very clearly demonstrate that you will not have ANY financial worries no matter what happens politically.  So why are you so fixated on a scenario that is literally meaningless to you, to the extent you are letting it drive your life choices?  That is a question for therapy.

Also -- and this is something I really don't understand, so I'm hoping you can help me here -- why do people focus so much on income tax rates in retirement, which is precisely when your earned income is going to drop precipitously?  Right now, you're earning $400K of purely taxable income; when you retire, you'll be paying taxes on SS income, and then on whatever CGs you realize (and with your low spending, your "involuntary" CGs from dividends and such will probably exceed your needs on their own).  So, what, $30K in SS and $30-50K in CGs?  So why the focus on income tax levels for a time in life when income taxes are the least meaningful they've ever been?  If you move, you'll probably pay a lot more in property taxes than you'll save in lower state taxes. 

If you want to make a smart financial decision, you need to look at ALL the pros and cons instead of hyperfocusing on the one.  For ex., states with no income taxes tend to have higher fees for things like car registration and property taxes, because they still have governments to pay for; OTOH, states with higher income taxes tend to also offer more services that you might want to take advantage of (personally, if I had the cash, I'd retire in NYC, because everything I'd need would be close, and between walking and public transit, I imagine I'd be able to maintain my independence longer than if I needed to drive to do everything).   Similarly:  if you do move, why rent the house instead of selling?  If you sell, you can exempt $250k in home value increases from CG taxes; if you rent, you lose that exemption -- and you generate ordinary income that is subject to (ta-dah!) those higher taxes you're so scared of!  And would converting to a rental lose a homestead exemption and thus increase your RE taxes?  IDK, but those are the kinds of things YOU need to know before you make those decisions. 

Anyway:  big congratulations, you've totally won the race!  Now your job is basically to not fuck it up.  That means transitioning from the money-acquisition phase (when lowering your taxes makes a huge difference) to the "let's not lose it all" stage (when taxes are secondary at best).  So please, please, look at home insurance and an umbrella policy -- yes, you're going to think it's ridiculously expensive, but with those assets, you are a massive target for a lawsuit, and all it takes is one bad car crash to watch millions of your hard-earned money fly away.  So suck it up and buy it.  Go interview some CPAs and fee-only financial planners to find some you like; no, you may not find the right ones first try, but you sure won't find the right ones if you never look!  Investigate your post-retirement medical insurance options (something else that you should consider in deciding where to live, btw).  Get the facts and the knowledge you need to make solid decisions instead of fear-based ones.  And for Pete's sake, buy a car with head and side airbags and active crash-avoidance.  We got one for $17K, which you can easily afford.

Then go live your life in the confidence that you have more than you will ever need and thus have the freedom to do whatever the hell you want.  There is no greater victory to celebrate.

ysette9

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As usual, @Laura33 nails it, in addition to all the other great advice you got.

I’d recommend hiring a tax person to do some legit withdrawal analysis for you as well as tax planning. I used some simple online tax calculators available and predict we will be paying almost nothing in taxes, at least for the first decade or so of FIRE because of how nicely long term capital gains are treated. At your low spending levels I wouldn’t be surprised it you found yourself laying little to no federal taxes either and still have space to do Roth conversions. Or pay a little in taxes and do Roth conversions to fill up the first or second tax bracket to reduce your fear there (though clearly you don’t actually need to worry about it). By keeping your spending lower than ridiculous you will die extraordinarily rich and therefore avoid the majority of taxes when you either give your estate to charity or your heirs enjoy a step up in basis.

Good luck learning how to loosen the purse strings and let go of some of your concern. You have so much in front of you and you can have a rocking good time of it if you let yourself.

lhamo

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The Washington state capital gains tax is 7 per cent on anything over $250k per year. Real estate and some other things are excluded. It isn't going to decimate any truly wealthy person's finances.

grue

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Quote from: nereo
One thing that's still not clear to me is why - with your assets - you would move to another state just (or primarily) to avoid taxes.

I’d wouldn’t say “primarily” but yes, (all things being equal) it was “on the list.”

Here’s what’s important to me (possibly clarifying I’m not hopelessly obsessed? Or maybe damning me!):

1. Moderate climate: cooler over hotter — think “San Francisco weather” — but (limited) snow would be nice. I like rain. New constraint: avoid wildfires.
2. Lots of hiking/camping and “enjoy nature” opportunities.
 - My “go to” vacation is hiking/camping in the High Sierras, but it’d be nice if the 4+ hour drive was reduced.
 - I’d like to pursue ocean/bay kayaking more.
 - Some place where the water and mountains were closer together would be ideal.
 - Having long, paved bike trails (not sharing the road with cars) like Iron Horse Trail is a big bonus.
3. …*Now* tax-friendliness!
 - Growing up, I remember family trips to tax-free Delaware for stuff like “new clothes/supplies for school year.”  Guess it stuck with me.
 - Living on the border of WA (no income tax) and OR (no sales tax) resonates with me (despite “use tax reporting” ethical concerns).
 - Not paying extra 10% on LTCG (especially if I minimally trigger whatever taxes the state creates to “make up” for not having income taxes) is good.
4. *Convenience* to urban center.
 - I hate driving in big city traffic.  Pre-COVID, I enjoyed being able to day-trip to San Francisco (for good Dim Sum) using CalTrain.
 - Proximity to an international airport would be a plus (should travel become safe again).

That sounds like the outskirts of Vancouver to me (except for public transportation), and if you drop “urban center,” coastal Washington?  Any other good matches?

Quote from: nereo
strategies are good - obsessions typically are not.

Point well-taken!

Quote from: Laura33
Also -- and this is something I really don't understand, so I'm hoping you can help me here -- why do people focus so much on income tax rates in retirement

Thanks for your post, and I’ve been trying to think this through for you…

I’m totally with you on “after retirement, with no income and a well-diversified portfolio, I can be smart about generating taxable capital gains that 1) allows me to maintain a happy lifestyle and 2) keeps me in lower tax-brackets.”

I’m concerned about income taxes *before* retirement given my portfolio.  My worries align with your

Quote from: Laura33
Now your job is basically to not fuck it up.

statement and the “never sell” approach that I did for a long time.  It paid off (so far) but now when I look at my portfolio and see the “percentage of assets in FAANG-like stocks”, I wince, think to myself “that’s a painful drop waiting to happen,” and am squeezed by this deadlock:

- If I don’t want to leave my job (so still a bunch of W2 income),
- then I can’t leave California (because I think remote-work isn’t fulfilling),
- but if I do start selling winners *now*, those capital gains will be taxed (if LTCG rules change) at “near the top” federally *plus* by California.

But if I do force myself to sell (just incrementally), maybe the downside of extra taxes will be a small price to pay to be “less worried” about the portfolio being too risky.  I really don’t want to fuck it up.

Quote from: Laura33
 Similarly:  if you do move, why rent the house instead of selling?

My thinking there aligns with your retire-to-NYC idea… Palo Alto would be great place to “return to” for the last-few-years of life when I might:

- Need to visit medical centers/hospitals regularly (there are a bunch of good ones here).
- Want a lot of choices for in-home care (a lot of retired nurses looking for side-gigs as home assistants).
- Walk to farmer’s markets, supermarkets, good library, and a “quaint” downtown.
- Want to be back in a “no snow/ice slip on” climate.

And, thanks to previous owner, the home itself is very senior-friendly (no stairs, door handles instead of knobs, grab-bars in showers, and a bunch of other accessibility junk): it is setup to die in!

Secondarily (more for the therapist): if I don't sell, I don't have to pay those realtor fees! :-)

Quote from: Laura33
And would converting to a rental lose a homestead exemption and thus increase your RE taxes? 

It would, but not much (owner-occupancy takes $7K off assessed value in Santa Clara County).

If “property taxes + assessments” are “around 1%,” I guess that’s ~$70 off $10K+ tax bill?  Wow, didn't realize it was so little.  Maybe my math here is wrong.

Quote from: lhamo
Washington state capital gains tax is 7 per cent on anything over $250k per year.

That’s a bar I can stay under; thank you — I hadn’t seen the “actual numbers” before this thread.

Quote from: ysette9
Loosen the purse strings and let go of some of your concern. You have so much in front of you and you can have a rocking good time of it if you let yourself.

I like that sentiment.  Thank you for that bright feeling.

lhamo

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You should definitely look at western Washington, especially while you are still working.   No income tax here is a huge benefit, and tech salaries are not THAT much lower than in the Bay area when you factor in the lower taxes.

Most of the tech firms here are going to be much more flexible with remote work situations post-Covid, so you could live a bit further out and only commute 2-3 days/week.  Light rail is doing a small extension north this fall, and then there will be a big expansion in 2024. 

We live near the far northern border of Seattle just 1/2 a block from the biggest local bike trail.   SO does extended rides several times a week.  We are in an area with lots of trees and lovely views of Lake Washington so walking around the neighborhood is more like being in the country than in the city.   It is currently a roughly 20-30 minute bus ride + walk to the nearest light rail station, but that will drop to 15-20 minutes in a few months when the new station opens.

Other places that might suit you are the more central parts of Redmond and Issaquah (the urban core in both towns has walkable amenities and good bus connections to Seattle, though the towns sprawl as most suburbs do).  Or you could go farther up or down I-5 if you weren't doing a daily commute --  Bellingham is awesome but too far to drive for work in my opinion.


ysette9

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I moved from the bay area to seattle within the last year and the first several bullets of your Wants list sound exactly like this area to me. I had many of the same wants on my list. Overall I am happy here, though it is hard to form a full opinion in Covid times. The weather and nature and outdoors are wonderful. I can’t get over how damn beautiful it is. Two bodies of water and two snow-capped mountain ranges and Mt Rainier all visible from my roof deck. Damn.

joe189man

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Quote from: nereo
One thing that's still not clear to me is why - with your assets - you would move to another state just (or primarily) to avoid taxes.

I’d wouldn’t say “primarily” but yes, (all things being equal) it was “on the list.”

Here’s what’s important to me (possibly clarifying I’m not hopelessly obsessed? Or maybe damning me!):

1. Moderate climate: cooler over hotter — think “San Francisco weather” — but (limited) snow would be nice. I like rain. New constraint: avoid wildfires.
2. Lots of hiking/camping and “enjoy nature” opportunities.
 - My “go to” vacation is hiking/camping in the High Sierras, but it’d be nice if the 4+ hour drive was reduced.
 - I’d like to pursue ocean/bay kayaking more.
 - Some place where the water and mountains were closer together would be ideal.
 - Having long, paved bike trails (not sharing the road with cars) like Iron Horse Trail is a big bonus.
3. …*Now* tax-friendliness!
 - Growing up, I remember family trips to tax-free Delaware for stuff like “new clothes/supplies for school year.”  Guess it stuck with me.
 - Living on the border of WA (no income tax) and OR (no sales tax) resonates with me (despite “use tax reporting” ethical concerns).
 - Not paying extra 10% on LTCG (especially if I minimally trigger whatever taxes the state creates to “make up” for not having income taxes) is good.
4. *Convenience* to urban center.
 - I hate driving in big city traffic.  Pre-COVID, I enjoyed being able to day-trip to San Francisco (for good Dim Sum) using CalTrain.
 - Proximity to an international airport would be a plus (should travel become safe again).

That sounds like the outskirts of Vancouver to me (except for public transportation), and if you drop “urban center,” coastal Washington?  Any other good matches?

Quote from: nereo
strategies are good - obsessions typically are not.

Point well-taken!

Quote from: Laura33
Also -- and this is something I really don't understand, so I'm hoping you can help me here -- why do people focus so much on income tax rates in retirement

Thanks for your post, and I’ve been trying to think this through for you…

I’m totally with you on “after retirement, with no income and a well-diversified portfolio, I can be smart about generating taxable capital gains that 1) allows me to maintain a happy lifestyle and 2) keeps me in lower tax-brackets.”

I’m concerned about income taxes *before* retirement given my portfolio.  My worries align with your

Quote from: Laura33
Now your job is basically to not fuck it up.

statement and the “never sell” approach that I did for a long time.  It paid off (so far) but now when I look at my portfolio and see the “percentage of assets in FAANG-like stocks”, I wince, think to myself “that’s a painful drop waiting to happen,” and am squeezed by this deadlock:

- If I don’t want to leave my job (so still a bunch of W2 income),
- then I can’t leave California (because I think remote-work isn’t fulfilling),
- but if I do start selling winners *now*, those capital gains will be taxed (if LTCG rules change) at “near the top” federally *plus* by California.

But if I do force myself to sell (just incrementally), maybe the downside of extra taxes will be a small price to pay to be “less worried” about the portfolio being too risky.  I really don’t want to fuck it up.

Quote from: Laura33
Similarly:  if you do move, why rent the house instead of selling?

My thinking there aligns with your retire-to-NYC idea… Palo Alto would be great place to “return to” for the last-few-years of life when I might:

- Need to visit medical centers/hospitals regularly (there are a bunch of good ones here).
- Want a lot of choices for in-home care (a lot of retired nurses looking for side-gigs as home assistants).
- Walk to farmer’s markets, supermarkets, good library, and a “quaint” downtown.
- Want to be back in a “no snow/ice slip on” climate.

And, thanks to previous owner, the home itself is very senior-friendly (no stairs, door handles instead of knobs, grab-bars in showers, and a bunch of other accessibility junk): it is setup to die in!

Secondarily (more for the therapist): if I don't sell, I don't have to pay those realtor fees! :-)

Quote from: Laura33
And would converting to a rental lose a homestead exemption and thus increase your RE taxes?

It would, but not much (owner-occupancy takes $7K off assessed value in Santa Clara County).

If “property taxes + assessments” are “around 1%,” I guess that’s ~$70 off $10K+ tax bill?  Wow, didn't realize it was so little.  Maybe my math here is wrong.

Quote from: lhamo
Washington state capital gains tax is 7 per cent on anything over $250k per year.

That’s a bar I can stay under; thank you — I hadn’t seen the “actual numbers” before this thread.

Quote from: ysette9
Loosen the purse strings and let go of some of your concern. You have so much in front of you and you can have a rocking good time of it if you let yourself.

I like that sentiment.  Thank you for that bright feeling.

Nevada sounds like a decent landing place the areas around Reno put you 4 hours from the ocean, right by lake tahoe  and limitless camping opportunities and Nevada is quite tax freindly

ysette9

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Quote from: nereo
One thing that's still not clear to me is why - with your assets - you would move to another state just (or primarily) to avoid taxes.

I’d wouldn’t say “primarily” but yes, (all things being equal) it was “on the list.”

Here’s what’s important to me (possibly clarifying I’m not hopelessly obsessed? Or maybe damning me!):

1. Moderate climate: cooler over hotter — think “San Francisco weather” — but (limited) snow would be nice. I like rain. New constraint: avoid wildfires.
2. Lots of hiking/camping and “enjoy nature” opportunities.
 - My “go to” vacation is hiking/camping in the High Sierras, but it’d be nice if the 4+ hour drive was reduced.
 - I’d like to pursue ocean/bay kayaking more.
 - Some place where the water and mountains were closer together would be ideal.
 - Having long, paved bike trails (not sharing the road with cars) like Iron Horse Trail is a big bonus.
3. …*Now* tax-friendliness!
 - Growing up, I remember family trips to tax-free Delaware for stuff like “new clothes/supplies for school year.”  Guess it stuck with me.
 - Living on the border of WA (no income tax) and OR (no sales tax) resonates with me (despite “use tax reporting” ethical concerns).
 - Not paying extra 10% on LTCG (especially if I minimally trigger whatever taxes the state creates to “make up” for not having income taxes) is good.
4. *Convenience* to urban center.
 - I hate driving in big city traffic.  Pre-COVID, I enjoyed being able to day-trip to San Francisco (for good Dim Sum) using CalTrain.
 - Proximity to an international airport would be a plus (should travel become safe again).

That sounds like the outskirts of Vancouver to me (except for public transportation), and if you drop “urban center,” coastal Washington?  Any other good matches?

Quote from: nereo
strategies are good - obsessions typically are not.

Point well-taken!

Quote from: Laura33
Also -- and this is something I really don't understand, so I'm hoping you can help me here -- why do people focus so much on income tax rates in retirement

Thanks for your post, and I’ve been trying to think this through for you…

I’m totally with you on “after retirement, with no income and a well-diversified portfolio, I can be smart about generating taxable capital gains that 1) allows me to maintain a happy lifestyle and 2) keeps me in lower tax-brackets.”

I’m concerned about income taxes *before* retirement given my portfolio.  My worries align with your

Quote from: Laura33
Now your job is basically to not fuck it up.

statement and the “never sell” approach that I did for a long time.  It paid off (so far) but now when I look at my portfolio and see the “percentage of assets in FAANG-like stocks”, I wince, think to myself “that’s a painful drop waiting to happen,” and am squeezed by this deadlock:

- If I don’t want to leave my job (so still a bunch of W2 income),
- then I can’t leave California (because I think remote-work isn’t fulfilling),
- but if I do start selling winners *now*, those capital gains will be taxed (if LTCG rules change) at “near the top” federally *plus* by California.

But if I do force myself to sell (just incrementally), maybe the downside of extra taxes will be a small price to pay to be “less worried” about the portfolio being too risky.  I really don’t want to fuck it up.

Quote from: Laura33
Similarly:  if you do move, why rent the house instead of selling?

My thinking there aligns with your retire-to-NYC idea… Palo Alto would be great place to “return to” for the last-few-years of life when I might:

- Need to visit medical centers/hospitals regularly (there are a bunch of good ones here).
- Want a lot of choices for in-home care (a lot of retired nurses looking for side-gigs as home assistants).
- Walk to farmer’s markets, supermarkets, good library, and a “quaint” downtown.
- Want to be back in a “no snow/ice slip on” climate.

And, thanks to previous owner, the home itself is very senior-friendly (no stairs, door handles instead of knobs, grab-bars in showers, and a bunch of other accessibility junk): it is setup to die in!

Secondarily (more for the therapist): if I don't sell, I don't have to pay those realtor fees! :-)

Quote from: Laura33
And would converting to a rental lose a homestead exemption and thus increase your RE taxes?

It would, but not much (owner-occupancy takes $7K off assessed value in Santa Clara County).

If “property taxes + assessments” are “around 1%,” I guess that’s ~$70 off $10K+ tax bill?  Wow, didn't realize it was so little.  Maybe my math here is wrong.

Quote from: lhamo
Washington state capital gains tax is 7 per cent on anything over $250k per year.

That’s a bar I can stay under; thank you — I hadn’t seen the “actual numbers” before this thread.

Quote from: ysette9
Loosen the purse strings and let go of some of your concern. You have so much in front of you and you can have a rocking good time of it if you let yourself.

I like that sentiment.  Thank you for that bright feeling.

Nevada sounds like a decent landing place the areas around Reno put you 4 hours from the ocean, right by lake tahoe  and limitless camping opportunities and Nevada is quite tax freindly
Except Nevada isn’t going to get you the mild, cool weather, or the rain, right?

ericrugiero

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Many retirees are cutting it close and spending an extra $100K on taxes would be a big deal to their finances.  They are forced to really optimize their taxes so they don't run out of money.  You are not even close to that situation.  You have WAY more money than you need!  You could give away 75% of your wealth and still have plenty.  Don't let finances keep you from living where you want and doing what you want.  You need to manage the big picture risks (get that new car and umbrella policy) and don't sweat the small stuff.  I'm not saying you shouldn't try to optimize taxes.  Just don't worry about them and let them keep you from living your best life. 

lhamo

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No income tax here is a huge benefit

Pre-FIRE, yes, no income tax is huge; post-FIRE, no income tax just means higher sales/excise/other taxes (and maybe funding problems...), so if you retire and have low income, you might actually end up paying a higher percentage of your income in state and local taxes. Hooray for having "the most unfair state and local tax system in the country"!

Apologies if it sounds like I have an axe to grind! It just irks me when people discuss moving to Washington specifically because it has a regressive tax system :)

Agree that our tax structure is regressive and should be changed.   The new capital gains tax is a good thing  overall, hopefully.

But our sales tax/property taxes are not that high compared to many other places -- IIRC NYC has something like a 6-7% sales tax and higher property taxes.   And California's property tax structure is more messed up than ours.  FIREd people over age 62 should EASILY be able to qualify for significantly reduced property taxes -- our taxable income was low enough last year that ours dropped from roughly $8k/year to just $2400.  Our Medicaid/ACA options are much better and less expensive than a lot of places, too.

DS ended up getting a tech job locally but when he was looking he had already decided he didn't want to move to the bay area -- salary differentials for entry level jobs didn't make up for the tax and quality of life hit.

moneymatters242

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Their property taxes are a mess and there's clearly room for improvement, but ITEP actually thinks California has the most equitable state and local taxes in the country: https://itep.org/whopays/california/
Not to derail much further, but ITEP's methodology is hugely flawed - it's designed to push an agenda and nothing more.  If a person is evaluating taxes paid as a % of family income as a measure of tax fairness, then the only thing that makes logical sense to compare that against is the family income being earned. 

Evaluating spending (and resulting sales taxes and property taxes) vs. income is comparing apples to oranges.  It's like attempting to add two different units together (IE: inches & pounds) - it produces a meaningless result.  Income can only logically be compared against income taxes, and spending can only be compared against spending (sales) taxes. Spending measured as a % of income will by necessity be higher for lower incomes.  There's nothing fair or unfair about that, yet that fact results in inflated figures on this metric since larger spending as a % of income drives larger sales taxes as a % of income.

Consider this:  if higher income people were to simply spend more of their income on a year;y basis, this metric would show them as paying the same sales tax/property tax as a % of income as lower incomes.  This reveals how useless this metric ITEP has conjured up truly is.  Higher income people will eventually pay the same taxes on their spending as everyone else since sales taxes are flat % taxes, yet this metric hides/distorts that fact.
« Last Edit: May 08, 2021, 07:37:28 AM by moneymatters242 »

norajean

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You need property, rental and umbrella insurance immediately.  You own a home and have a tenant. If anything happens you could lose the entire $10 million in a personal injury law suit. Get home insurance with high deductibles, then layer on umbrella worth $5 million. This covers you if the tenant falls down the stairs and injures their brain, the dog mauls a baby, your old car runs over a doctor and maims her, etc.

My only comment on taxes is that they are unavoidable in your situation and there is little value in debating proposed changes.

Much Fishing to Do

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You don't have a tax problem, you have a confidence problem.

This is the only issue I see and I'll be the one to say this is all that really matters in this conversation.  I dont know how to fix this but you have plenty of resources to do it for any possible situation I can consider (e.g. if you put $1M of what you have, a mere 10%, in TIPs you'll be guaranteed to cover your current lifestyle for the next 40 years with that alone). 

Even with cuts you'll collect more from SS than you need to spend, so it doesn't even matter if you lose it all by then.

Extreme tax changes may make a huge dent in you nest egg, as in in 30 years maybe you'll be worth only $30M instead of $50M.  I'm just not sure I understand why that matters enough to worry you (a bad market would have a much greater affect anyway).  Even if you are taxed 100% on all further income you'll still never spend down the $10M you have now.

It'll take a disaster situation to affect you at all, and thats not gonna be taxes.  I agree with getting umbrella insurance. 

But frankly BY FAR there are only two things I can think of that will cut down on years of a long successful retirement for you, working too long or dying too soon.

chagan

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OP - I feel you and understand your challenge. I am no  where near your scale of assets, and your disproportionately low annual expenses, but I had similar hesitations to make myself feel like I was "FI". This forum talked me down, helped me think straight. I agree to most of all that was said up until now, you have a confidence problem and no one else but you can solve it.

Cant stress more on how critical a few things already listed by many as urgent next steps:

Get a damn car (tons of really really good used cars even 2019-2020 cars for 30-35K)
Get a home owners insurance
Get an umbrella policy (some one said it might be expensive, heck its not... less than $500 a year)
Stay away from any whole life (long term care rider) kind of insurance, you can insure your own lifestyle with your investments.
Give some serious thought to Estate planning ... (We are starting a private foundation to which you can donate money when alice, and then all proceeds once say your good byes);

Set a goal (say 5 more years) and just slow down on the work... in your case, clearly more money is more problems.
Don't let the thought of taxes ruin it for you.. there really are some great ways of reducing taxes, especially when you are not going to sell everything at once, spend some money if you have to for that advice, or tons of stuff to read up on. Be careful about RMDs.

Most importantly enjoy your success, you've worked hard enough to get where you are, don't waste it on worrying about things you cant control.

You have enough cash to take care of the unknown.

chagan

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Quote
But frankly BY FAR there are only two things I can think of that will cut down on years of a long successful retirement for you, working too long or dying too soon.


LOVE IT...

NaN

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Quote
But frankly BY FAR there are only two things I can think of that will cut down on years of a long successful retirement for you, working too long or dying too soon.


LOVE IT...

I 100% agree. ^^^

I don't think a traditional therapist will ease the OPs issues. Finding the right therapist would be a challenge. I think a kind of life coach would be more appropriate. I am not sure if anyone on here fits that bill, but I think there could be someone lurking here that knows of good life coaches for people in this situation. Coaches sometimes have lived what the OP is experiencing, or some variation of it. It sort of is like a mentor-for-hire.


bloodaxe

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Why are you on this forum? You have 10 million dollars. You could have retired with 4% of that.

Weisass

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Quote
But frankly BY FAR there are only two things I can think of that will cut down on years of a long successful retirement for you, working too long or dying too soon.


LOVE IT...

I 100% agree. ^^^

I don't think a traditional therapist will ease the OPs issues. Finding the right therapist would be a challenge. I think a kind of life coach would be more appropriate. I am not sure if anyone on here fits that bill, but I think there could be someone lurking here that knows of good life coaches for people in this situation. Coaches sometimes have lived what the OP is experiencing, or some variation of it. It sort of is like a mentor-for-hire.

Wasn't there someone who posted about their partner being addicted to life coaches? Maybe they might have some suggestions?

NaN

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Why are you on this forum? You have 10 million dollars. You could have retired with 4% of that.

My initial reaction is similar. However, I think what gets lost in this forum is the scenario where a person makes a killing living a frugal life and liking their job enough not to quit. MMM pretty much hated his job. Even the OP said he might like working with his 'toys' at work. For a lot of people they don't have that luxury, so this forum is great for setting up such that a MMM outcome is possible. The OP is in a really fortunate situation, and is a little bit of a fringe case for what could happen if acting frugally as if you would hate your job, want to retire in your 30s or 40s, etc, and then end up not hating your job. Continued work making larger and larger salaries up until 50 puts someone in a predicament like the OP. What does one do then? Clearly the OP shouldn't change his life just because he won the lottery, so to speak. I would say the OP is as welcome on this forum as anyone else. In a way, MMM kind of hit the lottery jackpot with the wealth created from this forum, but not from 'working'.

What's crazy from the OPs situation, even if you wiped out their entire assets and was only left with a job the result is still better than most people. In a few years the OP would have enough to retire, again.

And because of this really fortunate situation, to me it is a little infuriating to hear how the OP wants to just avoid paying taxes and acting like a new more progressive tax code could 'crush [the nest egg]'. Sorry, no pity here. Like everyone said, the OP has enough to pay taxes and be more than okay in any location they want to live. What is so bad about paying taxes? I get it. Years of upbringing (OP notes going to Delaware, etc.) makes one naturally think of situations like living on the cost of Washington/Oregon. Probably a hard 'switch' to turn off, especially if there are political tendencies. I just wish people would see their fortunate situation and not think it is a game to pay as little in taxes as possible, but to each their own. Instead of looking at the glass like "With $10M I might have to be $3M in taxes, holy crap that is a lot" it is "With $10m, even after taxes, I have $7M. I am doing great!!". Replace #s as appropriate and even a 70% tax rate puts one in a very good position to ride out their life in comfort.


Roots&Wings

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It's not at all unusual to want to minimize taxes and protect your assets. OP's post and situation is completely normal for a forum like Bogleheads, while it's most unusual for MMM.

Dicey

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I find it incredibly sad when someone who has completely won the game lacks the ability to savor the victory.

Why do you carry the assumption that all taxes are bad? Have you not benefited from many of the things taxes pay for, such as schools, fire, police, roads, and other infrastructure? What so inherently wrong about contributing to the general good? I kind of see it as a lack of awareness/gratitude that living in a land of privilege helped you get to this place.

This is one of the reasons I'm not a huge fan of Go Curry Cracker, but if avoiding taxes is your be-all, end-all, you might want to take a deep dive into his blog.

Roots&Wings

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By living in a state with high taxes vs income tax free state, you can then make an informed decision about how your quality of life and finances are impacted by state level taxes and fees (ideally you rent first before buying).

Thinking that someone should willingly pay more taxes than you could otherwise seems odd for a financial forum where optimizing tax situation is key for a lot of people.
 
Relocating to a tax free state was one of the best financial and quality of life decisions I've made. When people say it's irrelevant - that your insurance or sales tax or other fees will cancel out any income tax savings - that hasn't been my experience at all, which is why looking at your individual situation and evaluating details is so important.  

moneymatters242

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Why do you carry the assumption that all taxes are bad? Have you not benefited from many of the things taxes pay for, such as schools, fire, police, roads, and other infrastructure? What so inherently wrong about contributing to the general good? I kind of see it as a lack of awareness/gratitude that living in a land of privilege helped you get to this place.
I think you're far overreaching by equating the OP's desire to want to minimize his taxes to a lack of awareness/gratitude/appreciation of his privilege.  At the income levels that allowed him to amass that fortune, he has undoubtedly paid incredible amounts of taxes in his lifetime, especially living in California.  The legal obligation to the IRS and one's country is to pay the taxes that one legally owns and not one penny more.  Berating him for that is frankly unAmerican.

The services the OP has received that were tax funded such as schooling, fire protection, police, roads are the exact same that every other person in this country receives.  Those services put everyone on an equal playing field by providing equal opportunity, and from that point, it's up to the individual to forge their path in life.  Through what was likely strong work ethic, sacrifice, and ingenuity, he provided huge value to a company, and by extension its customers, and by extension society, to justify the large salary that allowed him to amass a fortune.  That is something that he should be lauded for and something that we should all be striving to achieve rather than tearing him down and belittling him for his success.


Morning Glory

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I find it incredibly sad when someone who has completely won the game lacks the ability to savor the victory.

Why do you carry the assumption that all taxes are bad? Have you not benefited from many of the things taxes pay for, such as schools, fire, police, roads, and other infrastructure? What so inherently wrong about contributing to the general good? I kind of see it as a lack of awareness/gratitude that living in a land of privilege helped you get to this place.

This is one of the reasons I'm not a huge fan of Go Curry Cracker, but if avoiding taxes is your be-all, end-all, you might want to take a deep dive into his blog.

+1
 
Nobody is belittling him for his success, they are bagging on him for being cheap.  MMM even has a frugal vs. cheap post that I thought was pretty good.

lutorm

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... It paid off (so far) but now when I look at my portfolio and see the “percentage of assets in FAANG-like stocks”, I wince, think to myself “that’s a painful drop waiting to happen,” and am squeezed by this deadlock:

- If I don’t want to leave my job (so still a bunch of W2 income),
- then I can’t leave California (because I think remote-work isn’t fulfilling),
- but if I do start selling winners *now*, those capital gains will be taxed (if LTCG rules change) at “near the top” federally *plus* by California.

But if I do force myself to sell (just incrementally), maybe the downside of extra taxes will be a small price to pay to be “less worried” about the portfolio being too risky.  I really don’t want to fuck it up.
I've paid a crapload of taxes these few years for exactly this reason -- for me, diversification was more important than avoiding taxes, especially since even after paying taxes, we're basically FI anyway.

At your level, I'd worry much more about security than about losing some comparatively small fraction of assets. Yeah, paying, what,. 30% tax on the gains from selling and diversifying will suck. But you'll still have 70% left, and those will still continue growing.

Compare that to the fact that NASDAQ dropped 78% between 2000 - 2002. Which one should you be more worried about?

This discussion about your stock risk vs taxes, and that you have a giant net worth but no liability protection, seems to indicate that you are hyper-averse to certain expenses, even small ones, but seem to be blind to the risk of uncertain expenses, even potentially huge ones.

Since it's going to be impossible for you to actually spend all your assets, I suggest you sit down and think through what could actually substantially threaten them. (Off hand I can only think of a few: a tech stock crash, the collapse of American society, a personal injury lawsuit, a severe medical event (I forget whether you had health insurance), or some sort of fraud.) Then think about what it would be worth it for you to protect yourself against these events.

MustacheAndaHalf

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- Taxable brokerage dividend yield: ~$1,500/month
...
Taxable Brokerage: $5,750,000 (Unrealized long term capital gains: ~$3M)
You have $5.75M in a taxable brokerage generating $18k/year in dividends.  That's 0.3% dividends, while Vanguard Total Stock Market (VTI) generates 1.2% in dividends.  Is your taxable brokerage mostly tax-exempt bonds?


At the risk of sounding foolish, but possibly helping you: you might want to create a minimum spending budget for things you enjoy.  You might enjoy reading (e-books or books), music (buying new mp3s), or a hobby where spending money brings you happiness.

Your wealth being $20 higher makes no difference, because the stock market will change your net worth by far more.  So consider starting with $20/month on a few hobbies, and see if that increases your enjoyment while still keeping your overall frugal lifestyle.