Approaching a Lower Income Retirement. What's your story?

I am fine financially, have investments and savings. Home is free and clear, no car payments but that does not mean for me to be extravagant or wasteful with my resources. You never know what the future holds. I am sure most of us are not happy with the increase costs of everything since COVID.

I have never felt the pressure or need to spend on something I did not need. Everyone feels that there are certain things they can't live without but in these challenging times I think a lot of people have started to pay attention and make different choices Yes, I am frugal but I don't go without at all.

Pay attention, buy when the price is low. Buy clothing at end of season, buy pantry goods when sales are offered, as we go into fall and the holidays it is a good time to stock up on those items. Buy meat when on sale and freeze.

It sounds like you are laying down a plan for your future but unexpected costs will come, so stay vigilant and make good choices to ensure your comfortable retirement.
 

Timewise 60+ said:
Is your son a teenager or younger? Take him with you? If not, he can live without you next-door. We raised 3 and they are now scattered all over the country. We still see them often and the quality of our time together is great. Even better since we do not live close together...
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Our son has schizophrenia. He is highly educated and worked for Apple battling it thru diet and exercise but he lost the battle completely when he turned 30 yrs old and broke his leg. Exercise was 50% of how he maintained, he even moved up a few times with the disease but it won. He was loosing the battle. We have no interest in leaving him.. He may decide to live on his own in an apartment which is great but we'll always be nearby. It's too risky otherwise to move much further away. I juice his vegetables 2x a day which really helps him.
 
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Muskrat said:
You have enough time to make a real difference. Find mr money mustache website and start reading. Do not forget car and house insurance…they add up. I live pretty darn cheap most of the time as a habit. I started at about 40…then single with about 10000. Today at 66 I am fine. How you look at money today affects tomorrow. Simple things like bottled water, Starbucks and eating out can totally make or break you . Decide what retirement looks like. Welcome and good luck.
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Good Morining. That's great you are set doing good at 66 and thanks for the advice.
Mr Money is excellent and the reason I started investing. Since I started this thread, I started a new job. $25 per hr x 45 hrs a week so we'll be contributing to the IRA and the Brokerage Account. It's really easy, I love it. Very healthy 85 year old lady with dementia. Expecting it to last abouit 5 yrs, possibly 6 yrs. She really is healthy and has a wonderful disposition.
About the time my husband takes his Social Security, I am expecting it to end. I'll then to back to working part time.
Home Insurance is not included because we will not be buying homeowners insurance. He is putting up a DIY sprinkler system on the roof which he wants to be metal. Wildfires are the risk
 

Blessed said:
I am fine financially, have investments and savings. Home is free and clear, no car payments but that does not mean for me to be extravagant or wasteful with my resources. You never know what the future holds. I am sure most of us are not happy with the increase costs of everything since COVID.

I have never felt the pressure or need to spend on something I did not need. Everyone feels that there are certain things they can't live without but in these challenging times I think a lot of people have started to pay attention and make different choices Yes, I am frugal but I don't go without at all.

Pay attention, buy when the price is low. Buy clothing at end of season, buy pantry goods when sales are offered, as we go into fall and the holidays it is a good time to stock up on those items. Buy meat when on sale and freeze.

It sounds like you are laying down a plan for your future but unexpected costs will come, so stay vigilant and make good choices to ensure your comfortable retirement.
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Great advice, thank you. We buy Wild Alaskan Salmon when on Sale but otherwise, buy 1/2 a cow from a farmer who lives 30 min away. We see his cows are grass fed. The bolded above seem to make life much easier not wanting to buy much if you do not need it. You are content with living with overall what you need, that is key imho.
 
Thanks everyone for your advice. It appears with this new job we'll be doing better than expected. Getting out from under thte Mortgage will help alot though we could almost pay it off our son is too far from his friends. We need to move anyhow the snow here is horrendous. It's not a good retirement area as we age.
 
I knew when I retired, my income would be cut quite a bit. I took early retirement at age 50 (the state full retirement age at the time was 55). They paid me as if I was 51 because it was 3 weeks before my 51st birthday, but I still lost 12% of my full pension. Plus, I was too young to collect social security. But I had planned for living on less. One thing I did was to have 20% (the max) taken out of my check for our deferred compensation plan two years before I retired.

I had a retirement nest egg, which was less than I anticipated, especially since I retired a year earlier than planned, but I had no intention of tapping into that. Factors that saved me as a low income retiree were the very low carrying charges (co-op speak for HOA fees) for the unit I own, a great retiree health insurance plan, being debt free and my husband who payed some of the expenses. I never expected him to pay my personal expenses though. I made out fine and didn't have to skimp on things I wanted. It didn't hurt that early in life, I learned to manage money quite well, out of necessity.
 
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One of my biggest challenges financially is managing taxes. I earned a good income and socked a lot of money into a 401(k) and other investments. Because I receive a decent SS benefit all it takes is a small wirhdraw from my nest egg and suddenly 85% of my SS is taxed, along with the tax due on my withdraw. It's also easy thru withdraws or passive income to exceed the base Medicare threshold and then your premiums start getting higher each year. Then at 72 you're forced into Required Minimum Distributions, that's a rule that really pisses me off.

I guess in my pre retirement thinking my plan was if I want to buy a big ticket item (like a new car) I just withdraw some money. I didn't fully realize the tax implications across the board. I expected to pay taxes yet feel I'm losing money every time I pay.

My point is if I had it to do over I would probably keep a large sum of cash resting in the bank. I know that's against conventional wisdom because it wouldn't grow much but it would be safe and fairly tax free upon withdraw, and I'd be good with that.
 
C50 said:
One of my biggest challenges financially is managing taxes. I earned a good income and socked a lot of money into a 401(k) and other investments. Because I receive a decent SS benefit all it takes is a small wirhdraw from my nest egg and suddenly 85% of my SS is taxed, along with the tax due on my withdraw. It's also easy thru withdraws or passive income to exceed the base Medicare threshold and then your premiums start getting higher each year. Then at 72 you're forced into Required Minimum Distributions, that's a rule that really pisses me off.

I guess in my pre retirement thinking my plan was if I want to buy a big ticket item (like a new car) I just withdraw some money. I didn't fully realize the tax implications across the board. I expected to pay taxes yet feel I'm losing money every time I pay.

My point is if I had it to do over I would probably keep a large sum of cash resting in the bank. I know that's against conventional wisdom because it wouldn't grow much but it would be safe and fairly tax free upon withdraw, and I'd be good with that.
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This is good information, thank you. DH & I are semi-retired but will stop in two years at age 73 (if not before) when have to start taking money from our IRAs.

Is this what you're talking about with the Medicare threshold?


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C50 said:
I guess in my pre retirement thinking my plan was if I want to buy a big ticket item (like a new car) I just withdraw some money. I didn't fully realize the tax implications across the board. I expected to pay taxes yet feel I'm losing money every time I pay.

My point is if I had it to do over I would probably keep a large sum of cash resting in the bank. I know that's against conventional wisdom because it wouldn't grow much but it would be safe and fairly tax free upon withdraw, and I'd be good with that.
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I'm very torn on taxes, on the one hand I want to pay my fair share and be a responsible citizen, but on the other hand I see so many people online in the Early Retirement forums having millions of dollars but using loopholes to get out of paying taxes and to get the high subsidies on health care that are intended for poor people.

If you had it to do over wouldn't you put money into a Roth IRA instead of leaving it in a bank earning less? If I had it to do over, I would have tried to put more into a Roth IRA, I didn't understand their tax advantages until the last couple years of my career, so I only have a little bit in that type of account (enough for one very economical new car maybe, at the pre-inflation prices).
 
C50 said:
One of my biggest challenges financially is managing taxes. I earned a good income and socked a lot of money into a 401(k) and other investments. Because I receive a decent SS benefit all it takes is a small wirhdraw from my nest egg and suddenly 85% of my SS is taxed, along with the tax due on my withdraw. It's also easy thru withdraws or passive income to exceed the base Medicare threshold and then your premiums start getting higher each year. Then at 72 you're forced into Required Minimum Distributions, that's a rule that really pisses me off.

I guess in my pre retirement thinking my plan was if I want to buy a big ticket item (like a new car) I just withdraw some money. I didn't fully realize the tax implications across the board. I expected to pay taxes yet feel I'm losing money every time I pay.

My point is if I had it to do over I would probably keep a large sum of cash resting in the bank. I know that's against conventional wisdom because it wouldn't grow much but it would be safe and fairly tax free upon withdraw, and I'd be good with that.
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I need to learn about this stuff. In about 4 months the credit cards will finally be paid off, and I can start accumulating retirement. Am 65 now, and my employer does a 401K investment and would do more matching funds if I started putting money there.

But I don't like the idea of the stock market and bonds, where purposeful manipulation is done by people behind the scenes, and not with my best interests in mind, at all.

I prefer the idea of running small businesses or buying land, or something that will grow in value safely, and the government won't steal, again, my hard work.
 
HoneyNut said:
I'm very torn on taxes, on the one hand I want to pay my fair share and be a responsible citizen, but on the other hand I see so many people online in the Early Retirement forums having millions of dollars but using loopholes to get out of paying taxes and to get the high subsidies on health care that are intended for poor people.

If you had it to do over wouldn't you put money into a Roth IRA instead of leaving it in a bank earning less? If I had it to do over, I would have tried to put more into a Roth IRA, I didn't understand their tax advantages until the last couple years of my career, so I only have a little bit in that type of account (enough for one very economical new car maybe, at the pre-inflation prices).
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That's a good question that I can't answer. Because I had a company managed 401(k) plan that was always my primary retirement savings. Later on when my income outpaced my lifestyle I simply started investing in the market. I figured one type of dedicated retirement account was enough so never looked into Roth plans, my bad probably.
 
StarSong said:
Thanks.

I don't have to worry about DH & I exceeding a $205K annual income threshold. :cool:
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I'll probably never hit the threshold either, but its certainly something to be aware of. Honestly I'm still not 100% certain what incomes apply and how they're calculated.
 
C50 said:
I'll probably never hit the threshold either, but its certainly something to be aware of. Honestly I'm still not 100% certain what incomes apply and how they're calculated.
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C50 said:
That's a good question that I can't answer. Because I had a company managed 401(k) plan that was always my primary retirement savings. Later on when my income outpaced my lifestyle I simply started investing in the market. I figured one type of dedicated retirement account was enough so never looked into Roth plans, my bad probably.
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Capital gains taxes in your one investment account are zero percent up until income reaches Up to $44,625K per year for a single our about double that for a married couple. And your contributions to your investment accounts are not taxed.

13,850 K Standard Deduction for a single and $27,700 for a married person.
As long as you keep the gains, for 1 year and 1 day or longer, you pay long term capital gains rate for that one account

For a married person, here's an example:

$325k in your investment account. It earns 10% gain each year- That's 32K per year gains you withdraw
$200k in your 401k. It earns 10% gain each year- that's $20k a year gains you've withdrawn

20k-401k per year gains (taxed at normal earned income tax rates)
$20k per yr Social Security. For taxes, Social Security is always halved so we'll use just 20k a year as the total instead of your 40K combined SS
-----------------------------------------
40k income
-27,700 Standard IRS deduction for marrieds
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$12,300 per year you will be taxed on
First 10k is taxed at 10% so that= 1k
Remaining e$2,300 is taxed at 12% so that's about= $275
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You owe $1275 in Taxes per year. But not really
If you are 65 or above, you get an additional IRS deduction of $1500

$12,300-$1500= $10,800
the first 10K earned income you are taxed at 10%= 1k
the remaining $800 you are taxed at 12%=$96
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You owe $1100 to the IRS Per year.



Capital Gains Tax rates for marrieds allow you to earn up to $89,251 per year in your investment account paying zero taxes
Or $44,625 per year as a single paying zero taxes
Beyond that amount, you pay 15% for amounts up to $89,251 per year for marrieds (or half that for singles).
If your gains as a married person are more than $89,251 per year, you pay 15% of anything from $89,252 a year until
$553k per year you withdraw. Singles it's $44,626 until $492k per year of withdraws on that one account.
Beyond those amounts it's 20% taxes max for anything past that. Again, this is just for that one investment account.
You probably owe zero taxes on that one investment account because as a single or married, you withdraw less than 492k per year.

I am not a CPA, this is just my understanding. Let's say you and your wife earn more combined social security than 40K per year, be sure to half that amount. It's probably safe to assume you are still likely in the 12% bracket for that social security amount. So an additional 10k of social security per year, then 50% halved, is 5k= $600 more per year added onto the $1100 amount above meaning you'd owe $1700 per yr.
 
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HoneyNut said:
I'm very torn on taxes, on the one hand I want to pay my fair share and be a responsible citizen, but on the other hand I see so many people online in the Early Retirement forums having millions of dollars but using loopholes to get out of paying taxes and to get the high subsidies on health care that are intended for poor people.

If you had it to do over wouldn't you put money into a Roth IRA instead of leaving it in a bank earning less? If I had it to do over, I would have tried to put more into a Roth IRA, I didn't understand their tax advantages until the last couple years of my career, so I only have a little bit in that type of account (enough for one very economical new car maybe, at the pre-inflation prices).
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I am poor so all I'd do is the employer 401k match and put the rest into a taxable investment account. I would never be earning more than 450k per year or $553k to ever pay any taxes on that amount. The poor think they need to use Roths or Traditional 401k's IRA's when these taxable accounts are best for them. And probably many others at the middle class level. Most poor people don't know this and listen to traditional financial advice when it really doesn't apply well to them
 
Social Security will be reformed at some point.
Last time it was talked about during an election was that people over 55 would be grandfathered in to the current system and the retirement age would be increased by1-2 years.
I also suspect that people at the top end of the Max for Social Security may be lowered by 'means testing', which I think is already included.
$3,627 is the max for social security at full retirement age, more if you wait until 70 ($4,555)
 
LisaThompson said:
I am poor so all I'd do is the employer 401k match and put the rest into a taxable investment account. I would never be earning more than 450k per year or $553k to ever pay any taxes on that amount. The poor think they need to use Roths or Traditional 401k's IRA's when these taxable accounts are best for them.
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I'm very confused by the reference to 450k or 553k. If you are in the US, federal taxes start way lower than that (probably around 15k for earned income, or 25k if getting Social Security income), and money in a taxable account can push your income up (such as if one of the investments produces a short term gain, or if you have treasury bond interest, etc). Also a portion of the dividends and long term gains become taxable if the total income minus the personal deduction plus the dividends&gains exceeds some level (used to be 40k, I'm not sure what it is now), though most likely that level isn't exceeded for low income people.

In a Roth IRA, any of its income does not count toward taxable income, and you would never need to pay taxes on any short or long term gains, interest, or dividends.

I'm not sure but I think if there is money left after getting the 401k match, if a person is paying any federal taxes at all it might be better to simply increase the amount for the 401k (or put the money in a traditional IRA) because that would lower taxable income.
 
C50 said:
One of my biggest challenges financially is managing taxes. I earned a good income and socked a lot of money into a 401(k) and other investments. Because I receive a decent SS benefit all it takes is a small wirhdraw from my nest egg and suddenly 85% of my SS is taxed, along with the tax due on my withdraw. It's also easy thru withdraws or passive income to exceed the base Medicare threshold and then your premiums start getting higher each year. Then at 72 you're forced into Required Minimum Distributions, that's a rule that really pisses me off.

I guess in my pre retirement thinking my plan was if I want to buy a big ticket item (like a new car) I just withdraw some money. I didn't fully realize the tax implications across the board. I expected to pay taxes yet feel I'm losing money every time I pay.

My point is if I had it to do over I would probably keep a large sum of cash resting in the bank. I know that's against conventional wisdom because it wouldn't grow much but it would be safe and fairly tax free upon withdraw, and I'd be good with that.
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Just so you know, the RMD age was increased to 73 in 2023 and 75 in 2033. If you are 65 or under right now, you should have 3 more years for conversions to age 75 It might help a little. This is due to the Secure Act 2.0
 

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