Avoid making negative or unhelpful posts, and instead focus on providing constructive feedback and ideas that can help to move the discussion forward.
- Manlobbi
Halls of Shrewd'm / US Policy
No. of Recommendations: 10
I retired in Jan 2023. I did go back to work for 2 months this past July/Aug. I liked the work but not doing 40+ hrs, a commute and living in an AirBnB with bad mattresses.
So far we are spending more than expected. Despite a fairly conservative portfolio (50% max in stocks) and the extra spending, our investments went up 6%.
Big expenses including 10% for travel, another 10% for eating out, 20% for insurance including medical and medical bills. Obviously a few of those expenses can easily be cut back if needed.
I'm hoping this year I did a better job of estimating taxes because last year I missed it big time and had penalties. Using a spreadsheet someone created over at bogleheads I'm probably only owing around $1K federal taxes and may be getting back money from state. I would have gotten money back from the federal taxes but I did a Roth conversion at the end of the year to reach up to the limit of our current tax bracket.
I'm not too big on paying taxes now instead of later but for a few years we can control our income until social security and then RMDs kick in.
Still tough getting used to spending instead of saving and I do miss work. Will look for something part time or something I can do from home.
Stay healthy and happy new year
Rich
No. of Recommendations: 7
I'm hoping this year I did a better job of estimating taxes because last year I missed it big time and had penalties. - Rich
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I have been doing aggressive Roth Conversions for 10+ years which as you know generates taxable income. On top of that my other income can swing plus or minus 20-30% each year based on investment earnings in taxable accounts, SS kicking in, etc. On top of all that, the feds adjust the brackets, the standard deduction, SS payments, etc each year. It is very difficult to make sufficiently accurate estimates of all the factors necessary to make estimated tax payments that bring you to within 2 or 3% of your target.
To manage all this, the "system" I ultimately arrived at is this. I use the safe havens defined in the tax code to avoid exposure to penalties. One of the safe harbors is: no penalty if your estimated tax payments for the current year total at least what your actual tax due was for last year, a number you know. Note, your total tax payment has to be 110% of last year if your current year taxable income is high enough.
So, using 2023/24 as example, to come up with estimated tax payments for 2024, I take 2023 tax due, multiply by 110%, then subtract off any 2023 over payment that I rolled forward to 2024. Whatever that number is, divide by 4 and viola, there is your quarterly payment to use throughout 2024. If your income jumps up or the tax tables change, you still will owe some taxes at the end of 2024. There is no avoiding the extra tax itself but you won't be paying any penalties.
Anyway, congrats on retirement.
Sorry for the long post, but I will must add briefly, if you haven't studied the Medicare IRMAA penalty and its potential impact on Roth conversion amounts, you should. I was oblivious for too long and started Roth conversions too late to avoid this penalty. It was an unforced error on my part and it hurts. Lesson learned.
No. of Recommendations: 2
If you miss work, maybe you shouldn't have retired.
I don't miss it. I liked my job, but I also like more not having to go in every day. I like being able to travel for two months without being home for one day (I was maxed at work at 4 weeks, and they didn't like me taking it all at once). I like sleeping late if I want to. Etc.
But it's not for everybody. Some people love to work, and that's great. They're happiest when they're doing a job. Maybe retirement isn't for those people, and that's fine. You don't have to retire. Society sort of expects you to, but who cares? As I get older, I care less and less what people and society think (not that I ever cared that much to begin with...if I'm not hurting anyone, let me do my own thing).
Because of mom dying, we had a chunk of cash I inherited. I'm distributing the retirement stuff quickly (three years). I don't think it will affect my IRMAA, but better safe. They could always change the rules. Plus, since I didn't invest that cash, it's sitting there for living expenses while my investments remain untouched. They always say you should have two years' living expenses liquid. We have at least four, since our house is paid-off.
No. of Recommendations: 1
That is wise, Mike. I'm horrible at making estimated tax payments. Still don't think about it until someone brings it up. I think I made one around tax time last year (2024), but I'll have to double-check. The time before that, I just paid it lump-sum when I thought about it, instead of quarterly. We were traveling for about four months last year, and I don't really think about stuff like that. Our monthly bills are auto-pay (utilities, credit cards, etc), so I don't have to think about them. I actively manage when I'm at home, but when I'm traveling, internet access can be irregular and unreliable. So it's auto-pay all the way.
But I should see if I pre-paid at least as much as I owed last year (as you suggest).
No. of Recommendations: 1
Taxes and budgets were tough for me. I was single almost my entire life and never had a budget. I basically was careful with money but not too careful. I wanted to enjoy life while I could and did my ski vacations and later Europe vacations and otherwise enjoyed life within reasons. Getting married changed that in terms of expenses being higher.
I've tried to use a spreadsheet to calculate potential issues down the road with things like IRMAA but I think we'll likely skirt that unless an inheritance occurs and in that case we'll just pay the penalty if we need to.
My big tax issue in 2023 was overlooking the amount of interest we were getting on money put aside for a house later that year. Getting 4%+ interest versus 1% makes a big difference.
From what I have calculated, I should owe $1K or less federal and likely will get back more than that from the state. I've bounced back and forth between AZ and MD for a while now although this past year will be the first full time in AZ in a while.
I would have stayed longer rather than retired in early 2023 if the location would have been better but due to various issues I ended up getting to my desk by 5AM 5 days a week which was too much for me.
Glad most everyone is enjoying retirement.
Rich
