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re: Retirement
Posted on 7/6/17 at 6:19 pm to notsince98
Posted on 7/6/17 at 6:19 pm to notsince98
quote:
Most people earn more money later in their careers than they do early in their careers. The taxes paid early in the career will be at a lower rate. This happens for the vast majority of people with professional careers.
The question is what tax rate they will pay in retirement, not that they will pay a higher tax rate later in their career than earlier, which should be just about a given.
I propose someone who starts working at 40k a year and retires making 100k a year isn't going to draw >100k in retirement a year, and therefore it is way more likely their tax rate in retirement is going to be < or = to their working years for most people.
But maybe I'm wrong in my thinking.
In any event if you get to the point you're backdooring Roth's you're crushing anyways
This post was edited on 7/6/17 at 6:24 pm
2
Posted on 7/6/17 at 7:16 pm to Teddy Ruxpin
quote:
I propose someone who starts working at 40k a year and retires making 100k a year isn't going to draw >100k in retirement a year, and therefore it is way more likely their tax rate in retirement is going to be < or = to their working years for most people.
What about a person who starts at a low salary and then over time acquires partially ownership of various interests or rental property. That person then retires and makes significantly more in passive income than their entire income was fresh out of college.
Still a good idea to invest, but it isnt far fetched to think that something like that can happen.
Posted on 7/7/17 at 3:22 pm to Teddy Ruxpin
quote:
The question is what tax rate they will pay in retirement, not that they will pay a higher tax rate later in their career than earlier, which should be just about a given.
This is an incorrect oversimplification for many reasons.
1) Both of my parents will earn more money in retirement than they do right now just months before they retire due to pensions and good savings.
2) The tax rate during retirement is NOT the only tax rate that matters. The tax rate from the day you start earning income until the day you die matters when analyzing roth vs traditional options. Do you know what future tax rates will be? most people don't. Even if you earn more you could be paying less later in life. Even if you earn less, you could be paying more later in life due to tax increases. This is why well balanced investing typically includes contributing both to a Roth and a Traditional option to hedge risk of tax change.
At some point as you get older, the benefits of the Roth options will become less and less significant to the point that it will likely make more sense to stop contributing to Roth options. When you are within a few years of retirement, you should have a better idea of your tax bracket for retirement and can make much more informed choices.
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