Retirement VS working

[BMarNJ]

I think you can find inexpensive places to live in any state. I’m in NJ and pay pretty high real estate taxes, but in the rural lower part of the state, homes are less expensive. Gas is cheap (and we don’t have self service), there’s no sales tax on food or clothing and things are generally less expensive here than in north Jersey. Yet I am close to the beach, Philadelphia, good hospitals, entertainment and of course Gino Pintos wine supplies.
At our retirement income level, state income taxes are not that bad.

 

[jswordy]

I am curious as to what people are paying as far as State taxes % wise? We live in NM and have a State income tax (no personal property tax). Between the State income tax and property tax the combined total is ~5% of our gross income.

How do others compare? I am curious if you don't pay any State income tax are your property taxes making up for a State income tax? This is what seems to be happening in TX. They boast all day and night about no State income tax but their property taxes have skyrocketed over the last 10 years or so.

My conclusion is the State government gets their $$$ one way or another.

There is no state income tax in Tennessee. I pay 4.15% income tax to Alabama because I work there. Yet as a practical matter, though, I have retail investment losses and other business losses that offset federal and state taxes. Sales taxes in both states are high. TN combined sales tax (state and local) averages 9.5%, highest in the US, and it is one of just a few states that taxes groceries. Alabama's sales tax is a tick lower at 9%, and the state taxes groceries. County property taxes in both states are very low. My farm property tax in TN is $700 a year.

Part of Texas's property tax rise is due to the property values rising so fast. They are rising fast here, too, but I live in a very rural county and commute to a city to work.

 

[sour_grapes]

I am curious as to what people are paying as far as State taxes % wise? We live in NM and have a State income tax (no personal property tax). Between the State income tax and property tax the combined total is ~5% of our gross income.

How do others compare? I am curious if you don't pay any State income tax are your property taxes making up for a State income tax? This is what seems to be happening in TX. They boast all day and night about no State income tax but their property taxes have skyrocketed over the last 10 years or so.

My conclusion is the State government gets their $$$ one way or another.

I agree with your essential point. There are a few exceptions, where states have "exogenous" sources of income (AK, FL...), but the rest have to get their money somewhere. And you neglected to mention sales taxes, which tend to be high for no-income-tax states.

My state taxes are ~5.5% of gross income (and that is close to true across the income spectrum, as our brackets are not very progressive). But I don't think we can make easy comparisons here regarding property taxes. There is a state component, but it will be dominated by local taxes.

 

[Kraffty]

I agree the money has and will come from somewhere somehow. AZ tends to be lower in income, property and gas taxes but makes up for it in sales taxes. Generally around 10% once you combine state and county taxes. You can always shop around different counties or states for large purchases but not the others.

 

[Boatboy24]

My conclusion is the State government gets their $$$ one way or another.

Virginia has sales tax, income tax AND (county) property tax. They certainly get their $$.

 

[bstnh1]

Getting old may not be a bowl of cherries. But the alternative is soooo much worse!!!

 

[Robert R]

I am curious as to what people are paying as far as State taxes % wise? We live in NM and have a State income tax (no personal property tax). Between the State income tax and property tax the combined total is ~5% of our gross income.

How do others compare? I am curious if you don't pay any State income tax are your property taxes making up for a State income tax? This is what seems to be happening in TX. They boast all day and night about no State income tax but their property taxes have skyrocketed over the last 10 years or so.

My conclusion is the State government gets their $$$ one way or another.

Oklahoma has income tax, sales tax (state rate is 4.5%, county and localities can bump the rate to 10% or more, and property taxes.

 

[glennwing]

I retired with a pension and took my social security at 62. I constantly see advice to not take it early but when I ran the numbers it didn’t make sense. I calculated the amount I collected from 62 until full SS at 65+ and how much a month I would get if I waited. The break even point for me was almost 80. I would much rather have the money in my 60s than more after 80.
this calculation did not take in to account the current vs future value of money which, if included, would probably move the break even point a couple years higher.
my pension and SS cover my living costs and we have not had to touch our IRAs at all in the 5 years since turning 62.

 

[wood1954]

I retired with a pension and took my social security at 62. I constantly see advice to not take it early but when I ran the numbers it didn’t make sense. I calculated the amount I collected from 62 until full SS at 65+ and how much a month I would get if I waited. The break even point for me was almost 80. I would much rather have the money in my 60s than more after 80.
this calculation did not take in to account the current vs future value of money which, if included, would probably move the break even point a couple years higher.
my pension and SS cover my living costs and we have not had to touch our IRAs at all in the 5 years since turning 62.

I agree, I did the same thing, I’d rather have cash when I’m young enough to enjoy it.

 

[CDrew]

Social Security is actuarially going to pay the same life time benefits regardless of when you start receiving it. You start receiving it late, you get it fewer years. It's not like you beat the system either way. It's a bit more complicated than that but not much. My take on it, assuming you have other income, is to start getting it at 62 and invest all of it. Then by say 70 or 75 when you really need it, you have 10 years of invested SSI and compound interest.

Plus, I think you can argue that the current madness of the feds giving away cash like there's no tomorrow will likely accelerate the time when the system becomes insolvent. So the earlier you get it the better.

I'm not 62 yet, so have not gone through the process, but looking at the numbers, that's how it looks to me.

 

[sour_grapes]

To my mind, the point of delaying SS is that it is the cheapest longevity insurance you can buy. If you die young, then, yeah, you would have been better off claiming early, but who cares? You are dead! But if you live a long time, you may really need those dollars late in life.

Also, the calculus changes for a couple. In most scenarios, it is optimal for the higher earner to wait to 70, and the lower earner to file earlier. You can play with the calculations on this nice site: Open Social Security: Free, Open-Source Social Security Calculator . You can specify different actuarial tables, which could be more or less appropriate depending on your personal circumstances (i.e., health). Also, you can enable some advanced options by ticking a checkbox in the first line.

 

[ibglowin]

We (Mrs IB and myself) attended multiple retirement seminars hosted by the Lab before retiring. They always had a speaker from SSA at some point and they discussed the pros and cons and all permutations. Too bad they took away the old "file and suspend" trick that was really the only way to game the system a bit but back to topic.

I plan to wait it out to full benefits. Mrs IB will file early. Right now we are living quite comfortably on just pension funds. No need to touch any 401K and IRA for the foreseeable future.

To my mind, the point of delaying SS is that it is the cheapest longevity insurance you can buy. If you die young, then, yeah, you would have been better off claiming early, but who cares? You are dead! But if you live a long time, you may really need those dollars late in life.

Also, the calculus changes for a couple. In most scenarios, it is optimal for the higher earner to wait to 70, and the lower earner to file earlier. You can play with the calculations on this nice site: Open Social Security: Free, Open-Source Social Security Calculator . You can specify different actuarial tables, which could be more or less appropriate depending on your personal circumstances (i.e., health). Also, you can enable some advanced options by ticking a checkbox in the first line.

 

[Rice_Guy]

There is another calculation,, many of us in the states have three pots, 1) SSI which is sometimes taxed and sometimes only part, 2) always taxed income as the compound interest CDrew gets, and 3) sheltered IRA/ 401K which is only taxed when we collect it.

Social Security is actuarially going to pay the same life time benefits regardless of when you start receiving it. You start receiving it late, you get it fewer years. It's not like you beat the system either way. It's a bit more complicated than that but not much. My take on it, assuming you have other income, is to start getting it at 62 and invest all of it. Then by say 70 or 75 when you really need it, you have 10 years of invested SSI and compound interest.

Plus, I think you can argue that the current madness of the feds giving away cash like there's no tomorrow will likely accelerate the time when the system becomes insolvent. So the earlier you get it the better.

I'm not 62 yet, so have not gone through the process, but looking at the numbers, that's how it looks to me.

You are smart to have done estimates of several scenarios and I agree debt will change the current tax assumptions. ,,, however in theory the SSI trust fund sits out there all buy itself and WILL be paid back.

 

[sour_grapes]

Here is another consideration: If one delays SS, that gives one a window of relatively lower income, during which he or she can do any desired Roth conversions of pre-tax dollars in a lower tax bracket. (This likely makes sense only if your post-SS income will put you into a higher tax bracket.)

 

[Rice_Guy]

Here is another consideration: If one delays SS, that gives one a window of relatively lower income, during which he or she can do any desired Roth conversions of pre-tax dollars in a lower tax bracket. (This likely makes sense only if your post-SS income will put you into a higher tax bracket.)

Wis does not tax SS, ,, fed varies but plan on 85% taxable.

 

[sour_grapes]

Wis does not tax SS, ,, fed varies but plan on 85% taxable.

I think you missed my point. Prior to drawing SS, one could use up more of the "headroom" in one's Federal tax brackets by executing conversions of tIRA/401k monies to a Roth IRA. Using those funds later, i.e., after drawing SS, would not kick you up further in the tax brackets. Judicious Roth conversions of tIRA/401k funds before drawing SS could keep your later distributions from tIRA/401k accounts (including RMDs) in a lower bracket.

My comment had little to do with taxability of SS itself.

 

[bstnh1]

I suspect that $50,000 (or any extra amount) is of more benefit to you in your 60s and 70s than it would be when you're 92. My mother lived to 95. At that age, she did not run around and spend money like she did 20 years earlier.

 

[glennwing]

I retired and took my pension at 48. My wife and I had a second career that was close to our hearts. Foster care. For 14 years we were a therapeutic treatment home for teen girls. Not a job for the faint of heart. There are some tax advantages to foster care. The daily reimbursement is not reportable income and our daily rate was higher than normal because the girls were considered high risk. Also if the child is with you more than 6 months you can claim them as a dependent. We usually had 4-6 girls in the house and claiming them as dependents allowed us to convert our 401k’s into Roth IRAs and still get a refund each year. We converted them over a period of 5 years.

 

[BirdieErnie]

I thought you might find this interesting. I believe where you live is more about the quality of life than the taxes. The clearer the state the higher the tax rates.

 

[jswordy]

Virginia has sales tax, income tax AND (county) property tax. They certainly get their $$.

I loved living in Williamsburg, and sometimes wish we had never moved. I sometimes get in discussions with folks here about that and they say, "Well, Virginia is a very high tax state." To which I reply, "Virginia is also a very high median income state." I think people who focus just on the tax side of things miss out on the true equation. Yes, taxes are lower in TN or AL, but the median income is also lower.

Interestingly, because Huntsville, AL (nearby me) has a large federal presence, it is well-known among Virginians working for the federal government. They often retire here, where their house sale in Virginia can fund a similar size or bigger house with a BIG chunk of change left over. That's the best of both worlds – earn the big bucks there, then move here where it is cheap to live for retirement. It's one reason this area is exploding with growth.

We moved here in 1990. The sale of our 1,100 SF Williamsburg house on a quarter-acre lot funded the purchase of the small farm we live on here.