Wednesday, April 14, 2021

Thinking On Taxes And Retirement

 Yesterday in speaking on the phone with a colleague, I started out the conversation with "Before we talk about anything else, how was your vacation?" - knowing that he had taken a week off a couple of weeks prior and wanting to start the conversation off on something of a good foot.

"Good" he replied.  "But it was completely wiped out the minute I got back."

"Always the way, at least here".

"It seriously made me think about retirement."

We both chuckled a bit and then moved on to the business at hand.

But the comment stuck with me.

Now, I am (to the best of my knowledge) not in any position to retire at the moment.  However, it does raise the rather interesting question of "Why am I working at this, and what for?"

I can generate certain answers of course: because I have to pay for a dwelling place, and food, and assist with college tuition, and support my spending habits on swords and books.  And to be fair, those are (at least somewhat) legitimate answers.  

But is that enough?

The reality is - under the current tax regime in place - I work 20% (one day of every five) for the government just in Federal Taxes.  Add to that the other taxes I pay (property taxes, sales taxes, etc.) and I am most likely close to 25% of my working life dedicated to working for the government.

That math does not strike me as being right.

At least here in Baja Canada, we have the trumpeted "progressive tax system" whereby those that earn more, pay more.  In other words, the harder you work to succeed or the more successful you are, the more you get the privilege of working for the government.

To be fair, to be retired (either independently, or on a combination of your own savings and your local version of Old Age Pension/Society Security or even just Old Age Pension/Social Security) means to have a curtailed income for probably 90% of us.  It rules out doing a lot of things.  And there are many that are effectively retired due to none of their own doing but by circumstances beyond their control, making a temporary job loss an unplanned life change.

And yet...

And yet, a constrained lifestyle is not the end of the world.  There are plenty of writers over at the bar on the right that lead such a life.  For the most part, although they work hard and sometimes experience difficulties, I very seldom hear them lamenting the fact that they have (by choice or by decree) moved to this lifestyle.

It does make one wonder.  And start doing some math.

14 comments:

  1. You can probably guess what I'm going to say, TB, "Jump on in, the water's fine!" :)

    It's true, a retirement income for many of us is very scaled back, and that tends to be worrisome before crossing the bridge. I think what helped me was keeping in my awareness that it would be this way. So there was a financial preparation (mostly in terms of securing tangible assets), but there was mental preparation as well. I.e., getting used to the idea that it would be different but it would be okay. And it is! For me, acceptance has been the key to contentment.

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    1. Leigh, you were (perhaps unsurprisingly) one of the people I was thinking of...

      I will go with you that mental preparation is a big part of it - maybe the biggest part of it. We become used to a certain way of life - maybe for 30 or 40 years? - and then we change it.

      If my parents and in-laws are any example, their incomes all "dropped" - but their needs and wants dropped as well, so it balanced out.

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  2. I, too, have been calculating this. Not on the spreadsheet, but mentally. My fervent hope is to find a few acres I can work to live on. Barring a miracle, that isn't looking too good.

    I started out on nothing. I didn't earn more than 10K a year until the ninth year of marriage. That would be 1991. Property taxes and utilites are the most worrisome. But I'm still trying to figure the way to end the madness and become a citizen and not a wage slave.

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    1. It all starts with calculations, STxAR - however one does them (I do Spreadsheets because my mind works that way).

      One thing I keep in mind (not my own advice, but that of others) is that one can do most anything, if one is willing to move to where it is possible. Hopefully we have The Ranch; if not, I will have to find somewhere else.

      But yes, becoming a citizen and not a wage slave is a noble endeavor.

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  3. I think it’s different for everyone, TB. You and Leigh have a strength of character and positive identity that I am still working to develop in myself. I don’t even know if I am retired or unemployed. I finally severed my ties to the rat race but found that my identity was tied up in it with my job, my friends and coworkers and relationships... and it left a hole. I lack purpose and meaning now. I am, for all intents and purposes... for the time being... a “househusband”. (The word sits in my mouth like a turd).

    I have to give myself meaning and purpose and find things to do. Learning another language was an awesome step in that direction. I spend a bit more time in the bible, and will be experimenting with other areas of self improvement. It has taken me about a year to sort myself out and readjust my head to the new circumstances. Unlike Leigh... acceptance is something I struggle with. It will come.

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    1. Glen - I do think it is different for everyone. Leigh has actual strength of character; I am more of the "fake it until you make" line of thought.

      But I feel your pain. My reduction in job roles has definitely changed how I view myself. I am effectively cut off from 90% of my former responsibilities and most of the relationships I had before. It is a bigger adjustment than I had anticipated.

      You are doing the right things though. Use the time. Experiment - but if something does not work, be okay with it. And immediately try something else - who knows what will stick.

      I think sometimes my greatest struggle in adapting to the new has been being willing to accept that the old is gone.

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  4. Over 120 years ago my Granny left Decatur, Texas in a covered wagon, crossed the Red River, and was plopped down in Pleasant Valley, Oklahoma. A mining and sod busting community astride the great plains. From dirt poor, literally living in a sod house, to middle class, to college educated professionals, and now I'm headed back. It is now my destiny to retrace those steps a little bit wisened and chastised. I will bust that sod again and hope to stay off the grid as much as humanly possible. The circle of life, from dust to dust. The comedian said "history doesn't repeat itself, but it does rhyme"...

    The question is not a question of work, but of time. Is it my time or is it my organization's time. Is either time ours or does it belong to the Government or the Bank? It is a question we all must answer.

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    1. Just So, it may be that I make the journey you are making, and go back to the place (or really almost the place) I grew up as well. And yes, staying to myself and off the grid as possible.

      And indeed, the real question is time: we sell our time for money, or have money that buys us time. The world would have us think the former is more valuable, but I have come to appreciate the latter.

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  5. I always laugh when I hear that our tax system should be more progressive in order to be fair!

    Like Glen, I am now a househusband though I prefer either the term trophy husband or Child Behavioral Modification Therapist depending on which company I am introducing myself. But we as a family unit are in a much different position than most. We have spent our entire lives paying ourselves first and living on what is left and so though we have the smallest house of all our peers, drive the plainest vehicles of all our peers, have the fewest toys of all our peers, oddly enough we could both retire now and live well while all our peers are still making car payments. Probably the only thing that doesn't allow us to do this besides my wife having no hobbies and thus no reason to retire, is the uncertainty in the health care market thanks to the upheaval it has gone through these last eight years.

    We have a couple more things going for us. I was wise enough to max out our Roth IRA's so that our contributions are available to us whenever my wife has had enough and we don't pay any tax on the earnings when we become eligible for them. We are now working on a taxable account that will give us hopefully five years of expenses in short order while we utilize Roth Ladders with our traditional IRA money. All of this will allow us to retire when my wife so desires and is a fairly tax efficient way to access our retirement accounts until such time we are old enough to withdraw at will.

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    1. Ed - You have presented a very logically laid out system (the engineer in you, no doubt). I have done some of those things, but not all of them. Our house is relatively plain (but somehow has doubled in value in 7 years) and our cars are nothing to write home about.

      I have run the numbers and I know the number we would need to live on here, which is surprisingly much less than what we are making now. But I need to make more and better decisions in this way - I theoretically have company stock and money tied up in that that I need to figure out how to transition to more controllable assets (when it makes sense).

      The health care market though is an attention getter, no doubt. It is the one thing that continues to keep me where I am without a thought of leaving.

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  6. You raise some interesting points. After coming home to work a year ago because of the pandemic, I’ve gotten a taste of what it’s like to be “around” all the time. For now, I know I need work, at least until I figure out what I’ll do with myself once I no longer have it.

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    1. Bob - First of all, thanks for stopping by and taking the time to comment!

      It is interesting - my experience is somewhat the same as yours. It has been almost 13 months since I have had to "report" for work and so I have been working from home. I have found it to be (overall) an invigorating experience: I am as effective as I would be at work and have more time to do other things - for example, being able to work out at lunch is an activity again because I only have to come back home, not back to the office. Other household items can also be fit into the time that I would have taken a break.

      That said, it also makes me realize that without work, there is a lot of time and only a very little of it would be filled. So I need to start planning for that as well. As, of course, some kind of transition plan.

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  7. TB, I retired two years ago at 63, and was more than happy to leave the working world behind. The pleasure and satisfaction were long gone, and it was time to focus on me instead of the corporate bottom line.

    Financially, you already know enough to assess that side of things for yourself. I would add, though, that the big thing that can allow/disallow a move to retirement is healthcare. In my case, I was able to stay on my (slightly) younger wife's health insurance until I turned 65 and could go on Medicare. In a couple of years, she turns 65 and can then retire and go on Medicare herself. Otherwise, if I would not have been able to cover the health care insurance costs this way, I would have had to remain an unhappy wage slave.

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  8. NM, first of congratulations! Undoubtedly well earned.

    Yes, the health care is the elephant in the room. Currently we are on mine. I have enough time left before Medicare would kick in that unless The Ravishing Mrs. TB were to get a position with coverage, it will be a while.

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