Welcome back for the 2nd post in our series of Go Curry Cracker Reader Financial Reviews, where we dig deep into the finances and ambitions of a lucky anonymous reader. Together, we can overcome limiting beliefs, change the rules, and exceed our goals
This month we go to Manhattan where Mr and Mrs NYC have discovered that lifestyle inflation is one of the world’s most powerful forces, second only to compound interest.
We will also learn a little about the difference between owning real estate and investing in real estate, the high tax burden of NYC, and why the Backdoor Roth is not necessarily a great investment choice.
We exchanged many emails over the past several weeks, which inspired a lot of creative thinking on both sides. Let’s see how it turned out
Over the past few years, taxes have become a bit of a passion obsession.
I had always assumed our tax rate would be lower in retirement, and therefore followed the mainstream advice to max out my 401k each year. This definitely helped to Turbocharge our Savings, and saved a ton in taxes during the accumulation phase
Then in our first years of early retirement, it became clear just how low our taxes could be. Infinitesimally low. Completely non existent. Zero
Now I’m on a mission to Never Pay Taxes Again, not for any politically or financially motivated reason… but just because we can
“What?! The IRS can take nearly 50% of my Retirement Fund in taxes?! How am I supposed to live on only half of my savings? With taxes like this, how can I ever retire, let alone early?”
There is a dangerous nuance in the US Tax Code code that is going to sink and destroy your retirement! There is nothing you can do when the Tax Torpedo strikes, taking nearly half of your income with it!
When you are accustomed to saving a high percentage of income every month, quitting your job and living off your portfolio can be intimidating. It was for us, at least
Now instead of receiving a steady stream of paychecks, making big contributions to a 401k and depositing healthy sums into a brokerage account each month, suddenly money is flowing out of those accounts!
And unlike a paycheck, income is inconsistent. Some months, dividends and interest cover all of our expenses. Most months, it doesn’t.
To further complicate things, there is a mix of 401k/IRA, Roth, and Brokerage accounts with different rules and tax treatment for withdrawals, as well as typical checking and savings accounts.
Should we spend the money in our taxable Brokerage account now, allowing the money in the 401k/IRA to continue to grow? What if we need a lump sum for a large expense? Should we keep a large cash buffer? Should dividends be automatically reinvested or deposited as cash? Does it make sense to harvest capital gains for cash spending?
I’ll share how we manage our Cash Flow, and hopefully answer these questions and more