Retire early to hunt more?

[VikingsGuy]

And back to the original discussion . . .

 

[Irrelevant]

I am just a minion, but do spend time with a number who are ultra wealthy - and they know it and would acknowledge it. In my experience, beyond a net worth of $100 million folks don't try to pretend they are just one bad year from the bread lines. They don't try to point out "how they earned every penny of it". They don't try to pretend their kid's college needs or their future elder care needs justify their accumulaion of such wealth. They don't pretend that just anybody can make money in the market like they can. It seems like it's the $10 million to $25 million folks that spend their time doing that.

I've never met "ultra" but plenty of the "non-ultra" wealthy, none of them think they're wealthy. 10 mill? Nope it's 20....

Personally, my # is 2mil non house non 401k assets.

 

[SAJ-99]

And back to the original discussion . . .

Just keep posting that on every retirement thread. "Complicated" is the buzz word all FA's use to take your money.

 

[VikingsGuy]

Just keep posting that on every retirement thread. "Complicated" is the buzz word all FA's use to take your money.

I love the way the comedian gives better financial advice than the self-interested professionals. But kidding aside, "The Little Book of Common Sense Investing" by John Bogle is all 95% of people need to ever know about saving for retirement. It's the only $13 dollar investment I know of that routinely makes average joes into millionaires (or at least hundreds of thousandaires).

 

[SAJ-99]

Good questions. I think we can make progress on the discriminating of income sources problem without going down every technical rabbit hole. There are many legal regimes and many tax approaches that oversimplify things to get a directionally correct outcome.

I do not like wealth taxes and do not like double taxation. Once I have an earned, post-tax, dollar in my mattress it should not be taxed again no matter how long it sits there. (For this reason, all things being equal I would be against property taxes, but without them people could indefinitely sit on real estate that creates all kinds of ridiculous economic and societal outcomes, so I can live with property taxes as a balance against that form of economic inefficiency and stagnation.). But I am not suggesting we retax previously taxed income. I am talking about taxing economic gains that are new, untaxed for an indefinite period, and afford the recipients a lifestyle as if they were income.

There are at least two approaches that can piggyback off longstanding approaches and will not require re-inventing the wheel.

The first could be:

1. You do your 1040 just like always - for 95% of taxpayers this ends the discussion. You have typical income sources, typical income amounts, and typical deductions and credits. You paid your share
2. Do your AMT (alternative minimum tax) just like always - about 5% have to at least look at this section, but under current rules, only 0.1% have to pay anything under it. The AMT is a catch of unusually high deductions or credits to a point society is concerned you not paying your fair share. Again, only 0.1% pay this.
3. That same 5% would (in the future under this theory) go through a few simple steps to see if they need to pay a MGT (minimum gains tax). This would make sure with folks with disproportionately high unrealized gains with little taxable "income" still pay a reasonable and "fair share" of taxes.
   • If your unrealized gains for the year were less than 10 million dollars (excluding retirement accounts) you would be exempt and done. At this point, 99.99% of taxpayers are DONE.
   • But if your unrealized gains over 10 million dollars and that was more than 5 times your AGI you would have some portion of those unrealized gains (say 15%) imputed as present income. Any taxes paid under this regime would then add to your basis for future analysis so there would be no double taxation.

A second alternative would be to apply something similar to the 401k required minimum distribution rule that we all are already subject to - this would require folks with investment portfolios valued over a certain amount (such as $25 million) to realize something like 10% of their yet unrealized gains each year and pay the commensurate capital gains taxes in the normal manner. It works for 401ks it could work here as well. As for unrealized losses, you could just catch those up at the end, where the taxes paid on gains realized for tax purposes would add to the basis when the asset is in fact sold and gains/losses would be covered in the normal course. This doesn't really increase actual taxes, it just limits perpetual tax deferral that creates a pseudo zero tax scenario that is unfair to wage earners.

Only hiccup would be to pay those 10% taxes they would need to sell stock. While I am in full support of your idea, many will not like the idea of an "owner" being forced by the government to reduce the ownership position.

 

[VikingsGuy]

Only hiccup would be to pay those 10% taxes they would need to sell stock. While I am in full support of your idea, many will not like the idea of an "owner" being forced by the government to reduce the ownership position.

Folks shouldn't be 100% in stocks - I don't know of any high wealth folks (the folks that hit those thresholds) that don't have liquid positions that could cover it. As for liking it. I am sure they won't, but 95% of us don't like having to pay 12.4% payroll taxes + medicare + sales tax + property taxes + income taxes anywhere from 10-50% of our hard-earned income either, but we do it. The average person could add 10+ years (the best/youngest years) to their retirement if not for the current tax burdens and we don't like that - so I won't be crying a river for the hedge fund billionaire having to sell 2% of his ridiculously priced Tesla stock to pitch into the public good.

 

[SAJ-99]

Folks shouldn't be 100% in stocks - I don't know of any high wealth folks (the folks that hit those thresholds) that don't have liquid positions that could cover it. As for liking it. I am sure they won't, but 95% of us don't like having to pay 12.4% payroll taxes + medicare + sales tax + property taxes + income taxes anywhere from 10-50% of our hard-earned income either, but we do it. The average person could add 10+ years (the best/youngest years) to their retirement if not for the current tax burdens and we don't like that - so I won't be crying a river for the hedge fund billionaire having to sell 2% of his ridiculously priced Tesla stock to pitch into the public good.

Agree, but I think we are talking about the Jeff Bezo’es and Mark Zuckerberg’s and Silicon Valley employees who get paid in stock options. They have a way to leverage the theoretical value (or actual unrealized value, if public) into useable wealth through borrowing. The question is do you want to collect on the value or collect on the quasi-income. Elizabeth Warren need not reply to the question. I would be fine with taxing the quasi-income by considering the loan backed by the option value income. But it does create a mess that tax lawyers and accountants could squirm out of the tax.

 

[VikingsGuy]

Agree, but I think we are talking about the Jeff Bezo’es and Mark Zuckerberg’s and Silicon Valley employees who get paid in stock options. They have a way to leverage the theoretical value (or actual unrealized value, if public) into useable wealth through borrowing. The question is do you want to collect on the value or collect on the quasi-income. Elizabeth Warren need not reply to the question. I would be fine with taxing the quasi-income by considering the loan backed by the option value income. But it does create a mess that tax lawyers and accountants could squirm out of the tax.

I hear you, but I was suggesting a $10 million exemption per year - over that, even those folks can suck it up. I get that means their 7 year stint at Amazon will leave a 35 yr old with just 30 million in the bank instead of 50 million, but if we look at how the world really works for the other 99.9999% of folks I can live with the fact they will only be able to piss away their money by buying one crappy vineyard and not also be able to piss it away by adding a crappy gourmet coffee line too.

 

[Trap]

No it isn't. I'm not sure where you got that impression. You need to have a new worth of certain amount. Depending on the bank, a person needs $1,000,000 net worth for this type of private banking. The major banks have tiered structures. The general rule for the bank is "Don't call us, we will call you.". If you are not sure, call HSBC and ask to set up a private banking/wealth account (these can be different things, but I lump them together).

I might have missed it but if you’re talking about the stock loans it’s just a margin loan you can get one with 2500 dollars in equity at any investment company. I guess the trick is to have 50 million in equity so you can take a 25 million dollar loan tax free. I don’t see it as being different than a heloc against your home equity and you can deduct that interest too. They are available to everyone you just have to have the equity for it to work

 

[SAJ-99]

I might have missed it but if you’re talking about the stock loans it’s just a margin loan you can get one with 2500 dollars in equity at any investment company. I guess the trick is to have 50 million in equity so you can take a 25 million dollar loan tax free. I don’t see it as being different than a heloc against your home equity and you can deduct that interest too. They are available to everyone you just have to have the equity for it to work

Yes, any American with some modestly positive net worth can get margin loan (Robinhood might not even require the positive net worth) or HELOC. This isn’t the same thing. It is the point where everyone knows how rich you are and doesn’t even check the numbers like income or credit score. It can go bad, like Archegos. However, generally they loan you money of any amount for any reason you make up.

 

[VikingsGuy]

It is the point where everyone knows how rich you are and doesn’t even check the numbers like income or credit score. It can go bad, like Archegos. However, generally they loan you money of any amount for any reason you make up.

For me the point is not whether some or all Americans can borrow against assets - they should be able to. For me it is also not that some folks will get better rates or payment terms than others - this is certainly the case but I leave that to the market to decide. For me, the point is when our decision to indefinitely defer taxation on financial benefits for some citizens and not others is facilitated, exacerbated, or encouraged by the use of such loans rather than realizing income as a tax dodge. YMMV.

 

[LousyResident]

You are mixing double taxing the basis versus never-taxed gains. Your principle/basis as you said has been taxed and it shouldn't be taxed again (taxing tax-deferred income like unrealized gains is completely different than "wealth taxes" or property taxes that repeatedly re-tax the same dollars/asset).

What if I said that because IT is such a crucial industry to America that any salary, bonus or other wages earned working for an IT company would not count as income and would not be taxed - and in order to pay for this program all teachers will have to pay an additional 5% payroll surcharge? Sales Manager at Google ZERO tax, local 5th grade teacher pony up.

Pretty much what's happening here - somebody decided that making money at an hourly job should be taxed but making money investing somehow should not (or at a much lower rate). It is an arbitrary choice that hurts many and helps a few. But because we have grown up with it being the norm we somehow intuitively justify it. But I could come up with dozens of equally arbitrary and unfair tax approaches that everyone would reject as illogical or unfair because they would be new and therefore easily rejected - yet it is super hard to get people to step back and realize what a complete rip-off for 99.99% of Americans the current arbitrary system is.

I'd only like to clarify for the sake of clarifying. I wasn't mixing them up, I just kind of disagree with getting taxed on the gains made from investing, whether it be on appreciation on a house, or growth on stocks. I'm not saying we should definitely change it (see the thinking through thing), but it bugs me.

 

[vanish]

I just kind of disagree with getting taxed on the gains made from investing, whether it be on appreciation on a house, or growth on stocks.

It seems to me that if we got rid of taxes on gains, then real estate investors and day traders would pay zero income tax. What makes them special?

 

[VikingsGuy]

It seems to me that if we got rid of taxes on gains, then real estate investors and day traders would pay zero income tax. What makes them special?

Their ability to convince many many Americans that they are.

Sorry for the cross-post, but this quote from another HT thread is just too on point to resist.

 

[LousyResident]

It seems to me that if we got rid of taxes on gains, then real estate investors and day traders would pay zero income tax. What makes them special?

I imagine we could distinguish between professional and amateur investors where investing is a primary or tertiary source of cash flow. Again, I'm not willing to die on this hill.

 

[BigHornRam]

Argument or narrative.......time will tell.

Consumer prices surge again as PCE inflation gauge hits highest annual rate since 2008

A key measure of U.S. inflation rose sharply again in May and showed prices rising at the fastest annual pace since 2008, signaling consumers can expect to...

www.marketwatch.com

"For now most investors appear to have bought into the Fed’s argument. Stocks are still rising and yields on long-dated U.S. Treasurys have actually declined over the past few months.

Some economists worry the Fed is being too lax, however. They question whether prices will drop back to 2% in 2022 as the Fed expects.

The central bank itself has underestimated the increase in inflation. The Fed now expects PCE inflation to average 3.4% in 2021, up from a 1.8% forecast at the end of last year.

Even then, the Fed still predicts inflation will drop back to 2.1% by 2022."

 

[Benfromalbuquerque]

Wow did this thread go sideways and actually ruin a decent discussion

Right! Point of order was retire early to hunt more. Where a person can fully retire or at least work less to do more recreation is at their own discretion at that time in life. SSI, 1% ultra wealthy and fear of the unknown really derailed this.

 

[VikingsGuy]

Right! Point of order was retire early to hunt more. Where a person can fully retire or at least work less to do more recreation is at their own discretion at that time in life. SSI, 1% ultra wealthy and fear of the unknown really derailed this.

Have you ever mapped out a lunch conversation between a few buddies? Who the heck sticks to the topic. My buddies and I may start with why the hell the Vikings don't dump Cousins and end up 20 minutes later arguing about why Steve never asked Sally to the prom 20 years ago with none of us knowing how we got there. The initial question gets answered early on and through a series of seemingly minor deviations and tangents you end up wandering all over - how is this some type of violation of normal discourse? If a thread gets hijacked in the first page or two and the OP gets no useful answers then that is a bad thing, but OP got his answers pages and pages ago. The thread at this point limps along on its own merits (or lack thereof) at this point irrespective of the OP - as is the way in almost all non-scripted human dialog.

 

[Trap]

Have you ever mapped out a lunch conversation between a few buddies? Who the heck sticks to the topic. My buddies and I may start with why the hell the Vikings don't dump Cousins and end up 20 minutes later arguing about why Steve never asked Sally to the prom 20 years ago with none of us knowing how we got there. The initial question gets answered early on and through a series of seemingly minor deviations and tangents you end up wandering all over - how is this some type of violation of normal discourse? If a thread gets hijacked in the first page or two and the OP gets no useful answers then that is a bad thing, but OP got his answers pages and pages ago. The thread at this point limps along on its own merits (or lack thereof) at this point irrespective of the OP - as is the way in almost all non-scripted human dialog.

I appreciate your take on defining income. W2 high income earners seem to pay the bulk of the overall tax-bill and the lowest w2 earners seem to pay nothing and some actually get a refund (without having actually paid it in) with things like the earned income tax credit. Seems like every time people want to tax the "wealthy " we put additional burden on people making great wages but they are already paying most of the tax. Meanwhile the truly ultra wealthy are taking their income through a combination of capital gains,dividends and loans on highly appreciated assets. Your strategy is the first fix that actually made sense to me. Any chance of getting this out there in the political realm, or is it already, and they just don't acknowledge it ?

 

[VikingsGuy]

I appreciate your take on defining income. W2 high income earners seem to pay the bulk of the overall tax-bill and the lowest w2 earners seem to pay nothing and some actually get a refund (without having actually paid it in) with things like the earned income tax credit. Seems like every time people want to tax the "wealthy " we put additional burden on people making great wages but they are already paying most of the tax. Meanwhile the truly ultra wealthy are taking their income through a combination of capital gains,dividends and loans on highly appreciated assets. Your strategy is the first fix that actually made sense to me. Any chance of getting this out there in the political realm, or is it already, and they just don't acknowledge it ?

I have no idea if it has been floated by others (I assume so) - it just seemed to make sense while I was typing. I assume there are real problems with it but do believe that the premise presents a first step to viable options. My intent was just to make the point that there are a myriad of options if we just tried - but we never try anymore we just label this anti-American and close our eyes, or label it as impossible -- it is neither. Happy to chat in more detail if folks wish, but I do not do any tax policy advocacy - my specialty is a different field.