Too poor to invest - living in the 12% bracket

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
thelateinvestor43
Posts: 626
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Too poor to invest - living in the 12% bracket

Post by thelateinvestor43 »

Does anyone else live in the 12% bracket like I do? I happened to get lucky with a sizeable inheritance and also have a part time cleaning job to "make ends meet". Right now I'm managing the $6k max to my ROTH and have opened a small taxable to put about $10k for now to grow a little.

I forgot to add that I don't pay a mortgage or rent right now (haven't for over 10 years) and I have more to invest for that reason.

I'm wondering if there are others similar to my position making a under $40k and still investing?
livesoft
Posts: 73346
Joined: Thu Mar 01, 2007 8:00 pm

Re: Too poor to invest - living in the 12% bracket

Post by livesoft »

I live in the 12% bracket. I love that I can avoid a lot of taxes that way. Also I don't pay a mortgage or rent either.
Wiki This signature message sponsored by sscritic: Learn to fish.
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Too poor to invest - living in the 12% bracket

Post by chevca »

I think your situation is a little different, livesoft. :happy

Congrats to you, OP! I don't imagine there are many that make under $40k and can manage to save or invest some.
CMD1
Posts: 131
Joined: Tue Nov 28, 2017 8:10 pm

Re: Too poor to invest - living in the 12% bracket

Post by CMD1 »

YES!! Spouse was home with the kids and pretty much we were that bracket until the last two years. Always tried to save 10%-15% and pick up the 401k match, even when making $23k in my twenties. Was in the $50k's for a while with two kids at home and still managed to save 15%+match. There wasn't much other savings happening obviously. Now in early 40's and assets are low compared to most on here but without our home (retirement only) knocking on the door of $300k as a couple and pacing well. Never earned six figures (even combined as a couple) until we hit our 40's.

We also always had mortgages, some larger than they should have been to deal with, but never other debt, no car payments etc. With no housing costs I would imagine you could save a good bit, that has always been our biggest cost by far.

Stick with it, you will be so happy you did.
BogleMelon
Posts: 2498
Joined: Mon Feb 01, 2016 11:49 am

Re: Too poor to invest - living in the 12% bracket

Post by BogleMelon »

We are in the 12% bracket, but that is after maxing out 401K's. I started investing when my income was $52K. What encouraged me to enter this world was the employer 401K match. I maintained a good budget and discovered that I needed another job so I did so for couple of weekends (overnight shift!). Shortly after, I decided it is too much for me to do especially I have to deal with numbers in the weekdays' mornings.
I pursued another job opportunity with an almost 40% increase! Meanwhile, spouse got her full-time work. So things got better now.
Did I mention that as a new immigrant I was once making $8/hr in a blue cooler job that I hated?

Life can be tough sometimes, sometimes there are things we can change, sometimes it is what it is. When it is difficult and tight, just focus on what you have today. If you have good health, focus on that. If you have a family, that is another priceless asset. Investing for the future is good, but you know what else is good? The life you have today, and this life has so many components, financials are just one small component out of many...
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
ddurrett896
Posts: 1366
Joined: Wed Nov 05, 2014 3:23 pm

Re: Too poor to invest - living in the 12% bracket

Post by ddurrett896 »

Was not long ago.
It’s not about how much you save, but what % of your income you save.

Person 1: makes $100,000, saves $5,000 and spends $95,000
Person 2: makes $50,000, saves $4,000 and spends $46,000.

Person 2 is in a better position.
rkhusky
Posts: 10206
Joined: Thu Aug 18, 2011 8:09 pm

Re: Too poor to invest - living in the 12% bracket

Post by rkhusky »

12% as single is different than 12% married. Cost of living is also a big factor.
mbasherp
Posts: 506
Joined: Mon Jun 26, 2017 8:48 am

Re: Too poor to invest - living in the 12% bracket

Post by mbasherp »

Married, currently coming in near the top of the 12% bracket taxable income. I wish we made more but we are able to accomplish a lot with what we have.

Do the best you can and you’ll be surprised at the results. We saved 33% of gross income this year and I still feel like we lived it up!
Smoke
Posts: 487
Joined: Thu Aug 30, 2018 12:45 pm
Location: Saturn

Re: Too poor to invest - living in the 12% bracket

Post by Smoke »

10% tax bracket here, although I am retired for 15 yrs now.
Arguing for the sake of arguing is something I am not going to engage in.
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Too poor to invest - living in the 12% bracket

Post by chevca »

Chiming in as a retiree that has lots of money, but now lives in a low tax bracket isn't really what the OP is looking for.

Let's keep it to folks still making a living and earning less than $40k/year rather than what tax bracket someone might be in....
livesoft
Posts: 73346
Joined: Thu Mar 01, 2007 8:00 pm

Re: Too poor to invest - living in the 12% bracket

Post by livesoft »

chevca wrote: Fri Dec 13, 2019 4:27 pm I think your situation is a little different, livesoft. :happy
Maybe not. My spouse works full time, so I am a stay-at-home spouse. My spouse cannot be making much income for us to be in the 12% tax bracket. Plus I have a little side income, but not as much as the OP.
Wiki This signature message sponsored by sscritic: Learn to fish.
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Too poor to invest - living in the 12% bracket

Post by chevca »

livesoft wrote: Fri Dec 13, 2019 6:14 pm
chevca wrote: Fri Dec 13, 2019 4:27 pm I think your situation is a little different, livesoft. :happy
Maybe not. My spouse works full time, so I am a stay-at-home spouse. Plus I have a little side income, but not as much as the OP.
And, your porfolio size is.... don't pretend to be poor. You post way too much to try and live secret life around here. :happy
Atilla
Posts: 1448
Joined: Tue Feb 09, 2010 7:44 pm

Re: Too poor to invest - living in the 12% bracket

Post by Atilla »

The cool thing now with pretty much everyone offering no-commission etf purchases, all you need is maybe fifty bucks to make a purchase free of charge. Po folk with the ambition to open a small brokerage account can add to their wealth free of charge. It's a great thing. :beer
Smoke
Posts: 487
Joined: Thu Aug 30, 2018 12:45 pm
Location: Saturn

Re: Too poor to invest - living in the 12% bracket

Post by Smoke »

chevca wrote: Fri Dec 13, 2019 6:13 pm Chiming in as a retiree that has lots of money, but now lives in a low tax bracket isn't really what the OP is looking for.

Let's keep it to folks still making a living and earning less than $40k/year one one salary with 2 kids and a no working spouse, rather than what tax bracket someone might be in....
As a past factory worker, making around 40k for most of my career, non working spouse and 2 kids, now in the 10% bracket, and never being above the 12% bracket and retiring at 50, 15 yrs ago I consider keeping it real. :beer
Arguing for the sake of arguing is something I am not going to engage in.
livesoft
Posts: 73346
Joined: Thu Mar 01, 2007 8:00 pm

Re: Too poor to invest - living in the 12% bracket

Post by livesoft »

chevca wrote: Fri Dec 13, 2019 6:16 pmAnd, your porfolio size is.... don't pretend to be poor. You post way too much to try and live secret life around here. :happy
And the OP is just a younger version of me as are many people on this forum. We all started somewhere. Even I made less than $40K when starting out.
Wiki This signature message sponsored by sscritic: Learn to fish.
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Too poor to invest - living in the 12% bracket

Post by chevca »

livesoft wrote: Fri Dec 13, 2019 6:23 pm
chevca wrote: Fri Dec 13, 2019 6:16 pmAnd, your porfolio size is.... don't pretend to be poor. You post way too much to try and live secret life around here. :happy
And the OP is just a younger version of me as are many people on this forum. We all started somewhere. Even I made less than $40K when starting out.
Weren't dinosaurs around when you started out? $40k was a lot of money then. :happy :beer
livesoft
Posts: 73346
Joined: Thu Mar 01, 2007 8:00 pm

Re: Too poor to invest - living in the 12% bracket

Post by livesoft »

chevca wrote: Fri Dec 13, 2019 6:27 pmWeren't dinosaurs around when you started out? $40k was a lot of money then. :happy :beer
No, they came on the scene later. But I had to work my way up to $40K, so I actually didn't start out there.
Wiki This signature message sponsored by sscritic: Learn to fish.
stoptothink
Posts: 8338
Joined: Fri Dec 31, 2010 9:53 am

Re: Too poor to invest - living in the 12% bracket

Post by stoptothink »

As a young married man, I was well in the 12% bracket. Cash-flowed (the now ex) wife through dental school and maxed a pair of Roth IRAs and got employer match on 401k, while never making more than $58k from age 24-29. It's a whole heck of a lot easier to save now that HHI is 4x that.
User avatar
ruralavalon
Posts: 19463
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Too poor to invest - living in the 12% bracket

Post by ruralavalon »

thelateinvestor43 wrote: Fri Dec 13, 2019 4:20 pm Does anyone else live in the 12% bracket like I do? I happened to get lucky with a sizeable inheritance and also have a part time cleaning job to "make ends meet". Right now I'm managing the $6k max to my ROTH and have opened a small taxable to put about $10k for now to grow a little.

I forgot to add that I don't pay a mortgage or rent right now (haven't for over 10 years) and I have more to invest for that reason.

I'm wondering if there are others similar to my position making a under $40k and still investing?
chevca wrote: Fri Dec 13, 2019 4:27 pm I think your situation is a little different, livesoft. :happy

Congrats to you, OP! I don't imagine there are many that make under $40k and can manage to save or invest some.
There are quite a few blue collar investors with median income. See the forum discussion "Is there such a thing as a blue collar Boglehead?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
vipertom1970
Posts: 774
Joined: Fri Jun 21, 2019 7:06 pm

Re: Too poor to invest - living in the 12% bracket

Post by vipertom1970 »

there is no such thing is "too poor to invest", time frame to invest is more important.

Check out this article:

https://www.marketwatch.com/story/save- ... 39XeVLRiDA
Last edited by vipertom1970 on Fri Dec 13, 2019 8:10 pm, edited 1 time in total.
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Too poor to invest - living in the 12% bracket

Post by chevca »

ruralavalon wrote: Fri Dec 13, 2019 6:39 pm
thelateinvestor43 wrote: Fri Dec 13, 2019 4:20 pm Does anyone else live in the 12% bracket like I do? I happened to get lucky with a sizeable inheritance and also have a part time cleaning job to "make ends meet". Right now I'm managing the $6k max to my ROTH and have opened a small taxable to put about $10k for now to grow a little.

I forgot to add that I don't pay a mortgage or rent right now (haven't for over 10 years) and I have more to invest for that reason.

I'm wondering if there are others similar to my position making a under $40k and still investing?
chevca wrote: Fri Dec 13, 2019 4:27 pm I think your situation is a little different, livesoft. :happy

Congrats to you, OP! I don't imagine there are many that make under $40k and can manage to save or invest some.
There are quite a few blue collar investors with median income. See the forum discussion "Is there such a thing as a blue collar Boglehead?
I didn't mean "many" just on the BHs forum. I meant overall across the country.

I mean, if someone's posting on BHs, they probably save and invest, right? :wink:
averagedude
Posts: 1176
Joined: Sun May 13, 2018 3:41 pm

Re: Too poor to invest - living in the 12% bracket

Post by averagedude »

Im in the low 22% bracket due to 401k contributions. A married couple with no dependents can make $100,000 a year and still be in the 12% bracket, and this is without traditional IRA or 401k contributions. Im very proud of you of being able to save money in retirement accounts on a modest income. Most people in your shoes don't save anything and just use their low income as an excuse. It is my belief that anyone that has no physical or mental handicaps can save 10% of their income. If they can't it is because of priorities, decisions, or choices that they have made in their past or present life. I know people who are extremely poor, but give 10% of their income to the church because it is important to them. Also, their are some people who make $30000 a year, yet spend $60 a week on tobacco.
Monkeyboy
Posts: 12
Joined: Sat Jan 29, 2011 5:15 am

Re: Too poor to invest - living in the 12% bracket

Post by Monkeyboy »

I've just applied for medicare and I printed out my income history on the SS website. In 1971 I made $292,I was a freshman in high school. I retired early in 2014 and I've never made more than 65K a year. My retirement funds at Vanguard as of today are 6K short of putting me in the 2 comma club! It's not what you make,It's what you spend!
harvestbook
Posts: 795
Joined: Sat Mar 18, 2017 7:12 pm

Re: Too poor to invest - living in the 12% bracket

Post by harvestbook »

We aim to be in the zero percent bracket by saving outrageously and maxing out every tax deferral/deduction we can. Last year, we did about $53K in two solo 401ks, $12k in tIRAs, $8k in HSA, and around $13k in self-employed health care deduction, managed around $8k in Roth conversions, and still paid zero federal income tax and about $30 in state tax.

We don't have the health-insurance deduction this year (free ACA insurance, a fringe benefit of supersaving) but will likely be in the zero bracket again, although I may have to sell some taxable index funds to fully fund tIRA or Roth since we earned a little less money. We are fortunate to be debt-free and children now out of the house. We take joy in trying to live on a budget of under $30K for a couple. And I also do part-time cleaning jobs on the side!

I don't believe there's such a thing as "too poor to invest," although I acknowledge circumstances might push many people up against their limits. We willingly make ourselves poor by investing!
I'm not smart enough to know, and I can't afford to guess.
averagedude
Posts: 1176
Joined: Sun May 13, 2018 3:41 pm

Re: Too poor to invest - living in the 12% bracket

Post by averagedude »

Me personally, as a blue collar worker, I have found success stories to be inspirational and actionable. It motivated me to continue to save and invest despite my below average hourly wage. To this day, I still love to hear about the different roads that people take to find financial success in their life, although I realize that some people are turned off by it. Most of the stories are the same. It's usually a story of someone who works hard and works smart.
CodeMaster
Posts: 782
Joined: Sun Mar 18, 2007 3:03 pm

Re: Too poor to invest - living in the 12% bracket

Post by CodeMaster »

thelateinvestor43 wrote: Fri Dec 13, 2019 4:20 pm Does anyone else live in the 12% bracket like I do? I happened to get lucky with a sizeable inheritance and also have a part time cleaning job to "make ends meet". Right now I'm managing the $6k max to my ROTH and have opened a small taxable to put about $10k for now to grow a little.

I forgot to add that I don't pay a mortgage or rent right now (haven't for over 10 years) and I have more to invest for that reason.

I'm wondering if there are others similar to my position making a under $40k and still investing?
I recommend figuring out what you would love to do for rest of your life, then self teaching yourself those skills and applying for those positions or figure out how to do it. Its entirely possible...
gougou
Posts: 307
Joined: Thu Sep 28, 2017 7:42 pm
Location: San Francisco Bay Area

Re: Too poor to invest - living in the 12% bracket

Post by gougou »

You can make over 100K and still be in the 12% bracket.

If you make 121K and use 24K standard deduction and max out one person's 401K of 19K, you are left with 78K taxable income and you are still in the 12% bracket.

121K income IMO is not too poor to invest.
User avatar
LadyGeek
Site Admin
Posts: 66405
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Too poor to invest - living in the 12% bracket

Post by LadyGeek »

I removed a contentious interchange. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

...At all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
StrawMan
Posts: 45
Joined: Mon Jul 07, 2014 7:51 am

Re: Too poor to invest - living in the 12% bracket

Post by StrawMan »

Monkeyboy wrote: Fri Dec 13, 2019 8:08 pm I've just applied for medicare and I printed out my income history on the SS website. In 1971 I made $292,I was a freshman in high school. I retired early in 2014 and I've never made more than 65K a year. My retirement funds at Vanguard as of today are 6K short of putting me in the 2 comma club! It's not what you make,It's what you spend!
That’s awesome!
StealthRabbit
Posts: 528
Joined: Sat Jun 13, 2009 1:25 am

Re: Too poor to invest - living in the 12% bracket

Post by StealthRabbit »

Currently in 12%, but it is the highest I have ever been. Saved, invested, and retired pre age 50 on single income, never over $60k gross. Started saving and investing pre-age 16
Nearly always worked 3 jobs, lived on PT income and usually invested 100% of my FT job. Finished a few degree programs while at it.

Hints;
Always work night shift and weekends, (more wages + less time to spend it + extra shifts)
Live cheap. (I still drive a 43 yo car that gets 50mpg on free fuel). That car cost me $35.
Never pass up overtime!
Diversify... The sooner your $$ are working for you, the better.
Have a plan. Stick with the plan.
Think you need to buy something? Think again, wait a few weeks. Still need it? Hopefully not!
Find smarter friends than you.
Take care of others before yourself. (I cared for a disabled parent for 30+ yrs, then started a DAF from my funds to be able to give to others perpetually. ). I survive fine. A treat for me is spending $2 contribution to orphans for my annual FREE Wendy's Frosty keychain. I hope to have a free Frosty sometime this week.

I travel very cheap. ($20/night guesthomes worldwide)
I eat via grocery produce departments (free culls everyday) .
I garden and swap via bartering, (have my own livestock)
I rent out my main home and live in adjacent slave qtrs. Plenty of space, easy to heat, no cooling required (moderate climate). Never have a car with AC.

No inheritance, except $100k in family debt from my disabled dad (when I was earning $1.50 / hr). That took several years to resolve.

You just do what it takes.
Save the rest.
User avatar
willthrill81
Posts: 20943
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Too poor to invest - living in the 12% bracket

Post by willthrill81 »

For a married-filing-jointly couple the 12% bracket goes just beyond $100k. That's significantly more than the median household income of about $60k.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Triple digit golfer
Posts: 5560
Joined: Mon May 18, 2009 5:57 pm

Re: Too poor to invest - living in the 12% bracket

Post by Triple digit golfer »

thelateinvestor43 wrote: Fri Dec 13, 2019 4:20 pm Does anyone else live in the 12% bracket like I do? I happened to get lucky with a sizeable inheritance and also have a part time cleaning job to "make ends meet". Right now I'm managing the $6k max to my ROTH and have opened a small taxable to put about $10k for now to grow a little.

I forgot to add that I don't pay a mortgage or rent right now (haven't for over 10 years) and I have more to invest for that reason.

I'm wondering if there are others similar to my position making a under $40k and still investing?
You are maxing your Roth. That's $6,000 per year. That is NOT a small amount of money and likely more than most people with twice your income save in a year. Keep it up, don't get down on yourself. Slow and steady wins the race.
fujiters
Posts: 396
Joined: Tue Mar 06, 2018 2:17 pm

Re: Too poor to invest - living in the 12% bracket

Post by fujiters »

Why Roth instead of traditional? You're not over the income limit to make deductible contributions, and it sounds like you're not covered by a retirement plan at work, meaning the income limit wouldn't apply to you in any case. Making traditional contributions would save you the 12% in federal taxes (plus state and local taxes, if they apply to you).

Also, perhaps contributing to traditional get you in range to qualify for the Savers Credit, which could put more money in your pocket.

You may also want to consider opening a Solo 401k for your cleaning work. This would allow you to put savings into a tax advantaged account rather than a taxable account. Again, you may want to consider putting such savings into tax deferred account and try to take advantage of the Savers Credit.
Last edited by fujiters on Sat Dec 14, 2019 1:18 am, edited 1 time in total.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham
User avatar
spdoublebass
Posts: 740
Joined: Thu Apr 27, 2017 10:04 pm
Location: NY

Re: Too poor to invest - living in the 12% bracket

Post by spdoublebass »

My wife and I are both in the 12% bracket. We file separately.
We safe 20% of every dollar we make.

If you do the math, saving 20% while making $30K a year is your annual Roth IRA contribution.

I think many folks make more on bogleheads, but they spend more too. I high saving rate for a low income person is a commendable achievement.

I also think people who earn less are used to living in less than other who made a lot of money. So when we retire, we don’t need as much per month.

I get intimidated on this site when I read things like people will draw 4% from their portfolio a year and that’s $60K. But then I think I don’t need that much now to live off of.

It’s all perspective. Also, I like my job. I hope I can do it well into my 70’s. So I’m not worried about having a ton of money to retire early with. I wouldn’t change anything career wise even if I got handing a life changing inheritance. (Which isn’t coming, Ha!)
I'm trying to think, but nothing happens
RobLyons
Posts: 799
Joined: Tue Oct 31, 2017 12:55 pm

Re: Too poor to invest - living in the 12% bracket

Post by RobLyons »

No mortgage/rent plus a large inheritence? Sounds like life isn't so bad even if you're making under $40k.
"Great parenting sets the foundation for a better world"
Topic Author
thelateinvestor43
Posts: 626
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Too poor to invest - living in the 12% bracket

Post by thelateinvestor43 »

fujiters wrote: Sat Dec 14, 2019 1:08 am Why Roth instead of traditional? You're not over the income limit to make deductible contributions, and it sounds like you're not covered by a retirement plan at work, meaning the income limit wouldn't apply to you in any case. Making traditional contributions would save you the 12% in federal taxes (plus state and local taxes, if they apply to you).

Also, perhaps contributing to traditional get you in range to qualify for the Savers Credit, which could put more money in your pocket.

You may also want to consider opening a Solo 401k for your cleaning work. This would allow you to put savings into a tax advantaged account rather than a taxable account. Again, you may want to consider putting such savings into tax deferred account and try to take advantage of the Savers Credit.
I like the ROTH because I can take out the principal IF I need it for something. I don't want to and hopefully won't, but it's peace of mind for me I guess. I think to take out the principal on the traditional you have to be 59.5?
User avatar
GMCZ71
Posts: 147
Joined: Sat Oct 13, 2018 8:05 am
Location: McMinnville, Or

Re: Too poor to invest - living in the 12% bracket

Post by GMCZ71 »

thelateinvestor43 wrote: Sat Dec 14, 2019 8:42 am
fujiters wrote: Sat Dec 14, 2019 1:08 am \ ROTH because I can take out the principal IF I need it for something. I don't want to and hopefully won't, but it's peace of mind for me I guess. I think to take out the principal on the traditional you have to be 59.5?
Taking money out before retirement is the worst thing you can do. The traditional can be tapped before 59.5 (72t rule google) again only if you are retiring early.

Also you should do your own taxes with one of the free online software companies. Set up on login with current info and second login with Trad IRA 8-)
John
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Too poor to invest - living in the 12% bracket

Post by chevca »

The Roth can be used as an emergency fund since contributions can be taken out easily. I think that's what the OP meant. Not that they want or plan to take them out, but just in case.
28fe6
Posts: 532
Joined: Wed Jan 03, 2018 9:01 am

Re: Too poor to invest - living in the 12% bracket

Post by 28fe6 »

If married, the high end of the 12% bracket is a great place to be. I've since moved firmly into the 22%, plus I can't contribute to a tIRA anymore. Because it's even more important to defer 22% taxes than 12%, I'm practically required to contribute more to 401K and HSA, which cuts cash flow. Thinks like EITC and saver's credit are gone. It seems like I'm hardly any better off. It's a steep climb out of the 12% bracket into better territory.
User avatar
LadyGeek
Site Admin
Posts: 66405
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Too poor to invest - living in the 12% bracket

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (general discussion).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Ron Ronnerson
Posts: 1721
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Too poor to invest - living in the 12% bracket

Post by Ron Ronnerson »

willthrill81 wrote: Fri Dec 13, 2019 11:52 pm For a married-filing-jointly couple the 12% bracket goes just beyond $100k. That's significantly more than the median household income of about $60k.
If using tax-deferred space, someone could earn quite a bit more than $100k in certain cases and remain in the 12% bracket.

An example: I have a good friend who is 50 years old. I don't know his wife's exact age but she is around the same age as my friend. They're both California teachers, currently in their 22nd year of teaching, and they have children. They have a paid-off home in the Bay Area, near Silicon Valley. If they were to max out their tax-deferred space, this is what they would subtract:

Income: $120k each x 2 = $240k
Pension Contributions @10.25% of salary: $12,300 x 2 = $24,600
403b contributions: $25k x2 = $50k
457b contributions: $25k x2 = $50k
Traditional IRA: $7k x2 = $14k
Health insurance premiums: $24k (employee portion taken from one of their paychecks that covers the whole family)
Dental insurance premiums: $2k (employee portion taken from paycheck)
Health FSA: $2700
Dependent Care FSA: $5000
Educator Expenses: $250 x2
Total above-line deductions $172,800
Standard deduction: $24,400
Taxable income: $240k – (172,800 + 24,400) = $42,800

If their combined salary was $276k, they could still be in the 12% bracket.

I'm also a California teacher. My salary is $115k and my wife is a stay-at-home parent. I do not max out tax-deferred space but am also in the 12% bracket. I do not pay any California income tax.
livesoft
Posts: 73346
Joined: Thu Mar 01, 2007 8:00 pm

Re: Too poor to invest - living in the 12% bracket

Post by livesoft »

Ron Ronnerson wrote: Sat Dec 14, 2019 10:34 amIf their combined salary was $276k, they could still be in the 12% bracket.
I like it. :thumbsup :thumbsup :thumbsup

But do they pay into FICA & Medicare? I don't know the situation for California teachers.

They will probably need some non-taxed return of capital to pay some other expenses, too, although their $67,200 and child+education tax credits could go a long way.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
hisdudeness
Posts: 123
Joined: Sat Nov 17, 2018 8:26 pm

Re: Too poor to invest - living in the 12% bracket

Post by hisdudeness »

averagedude wrote: Fri Dec 13, 2019 9:46 pm Me personally, as a blue collar worker, I have found success stories to be inspirational and actionable. It motivated me to continue to save and invest despite my below average hourly wage. To this day, I still love to hear about the different roads that people take to find financial success in their life, although I realize that some people are turned off by it. Most of the stories are the same. It's usually a story of someone who works hard and works smart.
+1
Patience, perseverance, and a little luck. At least not having bad things come along, like major medical expenses
User avatar
willthrill81
Posts: 20943
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Too poor to invest - living in the 12% bracket

Post by willthrill81 »

Ron Ronnerson wrote: Sat Dec 14, 2019 10:34 am
willthrill81 wrote: Fri Dec 13, 2019 11:52 pm For a married-filing-jointly couple the 12% bracket goes just beyond $100k. That's significantly more than the median household income of about $60k.
If using tax-deferred space, someone could earn quite a bit more than $100k in certain cases and remain in the 12% bracket.
Absolutely. I was just referring to taxable income.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Ron Ronnerson
Posts: 1721
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Too poor to invest - living in the 12% bracket

Post by Ron Ronnerson »

livesoft wrote: Sat Dec 14, 2019 10:39 am
Ron Ronnerson wrote: Sat Dec 14, 2019 10:34 amIf their combined salary was $276k, they could still be in the 12% bracket.
I like it. :thumbsup :thumbsup :thumbsup

But do they pay into FICA & Medicare? I don't know the situation for California teachers.

They will probably need some non-taxed return of capital to pay some other expenses, too, although their $67,200 and child+education tax credits could go a long way.
California teachers don't pay into social security but they would need to pay 1.45% toward Medicare.

To cover their expenses, they could reduce their tax-deferred savings by another $36k and still remain in the 12% bracket. They also have a paid off home and solar panels. Their property taxes are low as they bought their home in the 90s and rates increase minimally in California due to Prop 13. My friend and his wife both drive cars that are 20 years old. His commute is a 5-minute drive and hers is a 5-minute walk. So, housing and transportation costs are low for them while other expenses can be kept reasonable if a person is so inclined. I hear she does like jewelry, though.
Ron Ronnerson
Posts: 1721
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Too poor to invest - living in the 12% bracket

Post by Ron Ronnerson »

willthrill81 wrote: Sat Dec 14, 2019 10:55 am
Ron Ronnerson wrote: Sat Dec 14, 2019 10:34 am
willthrill81 wrote: Fri Dec 13, 2019 11:52 pm For a married-filing-jointly couple the 12% bracket goes just beyond $100k. That's significantly more than the median household income of about $60k.
If using tax-deferred space, someone could earn quite a bit more than $100k in certain cases and remain in the 12% bracket.
Absolutely. I was just referring to taxable income.
Okay, got it!
User avatar
teen persuasion
Posts: 1271
Joined: Sun Oct 25, 2015 1:43 pm

Re: Too poor to invest - living in the 12% bracket

Post by teen persuasion »

We (family of 7) only exceeded $40k income per year sometime after I began working part time once DS5 was in school. It took a long time for my income to significantly increase our family income, I just surpassed $20k annual income last year!

DH's income has been slow to grow, too. I think he surpassed $40k by himself 2 years ago.


Years back, DH only contributed enough to capture the 5% match. When the recession hit, his employer cut the match, and DH wanted to quit contributing. I wanted to increase his contribution to make up for the lost match! I tweaked his withholdings and health insurance choice, and found enough savings in that to keep the take home nearly the same while doubling the contribution. At tax time, I learned its not just about the tax rate reduction, it can also be about credits that lower AGI make you eligible for. The slightly reduced taxable and AGI made our EITC grow, which in turn made our state EITC grow. So I doubled the contribution again, to 20%. Those increased refundable credits (with CTC for 5 kids) I used to pay down our ugly 9.75% mortgage. I kept finding more savings (couponing, rebates, reduced expenses) to put toward the 401k, to drive up our refundable credits, to pay off our mortgage. Student loans got paid off, more to contribute. I started working very part time, more to contribute. Finally, mortgage was gone, 15+ years early, and i redirected the refundable credits to Roth IRAs for both of us, while DH was now contributing 55% to his 401k to max it out. Then realized the advantages of an HSA, and shifted to max that before trying to max the 401k (cut back on the 401k somewhat as we couldn't fill both, yet). We hit 50, and had higher maxes to stretch for!

My employer didn't offer any benefits, so we saved everything in DH's 401k for both of us early on. I was 43 when I opened a Roth IRA in my name (and slightly later in DH's name), my first retirement account. So our balances are lopsided. Just this year my employer offered a SIMPLE IRA to us, at mid year, so I'm contributing 100% to it this year, and 80% next, to get as much as possible in my name to even the balance somewhat (state tax benefit at withdrawal is per person, so our exemption is half with balances only in DH's name). We've backed off contributions in DH's 401k to compensate.

We've made a lot of progress in roughly 10 years, from contributions of ~$1700/yr then to ~$47k/yr now. Retirement balances went from 1.5 * expenses to 24 * expenses now.
User avatar
danielc
Posts: 1068
Joined: Sun Dec 10, 2017 4:48 am
Location: Iowa, USA
Contact:

Re: Too poor to invest - living in the 12% bracket

Post by danielc »

mbasherp wrote: Fri Dec 13, 2019 5:39 pm Married, currently coming in near the top of the 12% bracket taxable income. I wish we made more but we are able to accomplish a lot with what we have.

Do the best you can and you’ll be surprised at the results. We saved 33% of gross income this year and I still feel like we lived it up!
It is good to see that I am not the only forum member that doesn't have a high income. You see so many posts from people with very high salaries, or who received a large inheritance... I remember the Boglehead survey that showed that most Bogleheads (that replied to the survey) are millionaires and I just don't see how I could keep up with them. It's a weird case of "keeping up with the Joneses", except it's comparing portfolio size rather than wasteful spending. In any case, I think we're saving around 45% of gross income, so we're making a brave effort, and as your case, we don't feel deprived.
User avatar
danielc
Posts: 1068
Joined: Sun Dec 10, 2017 4:48 am
Location: Iowa, USA
Contact:

Re: Too poor to invest - living in the 12% bracket

Post by danielc »

teen persuasion wrote: Sun Dec 15, 2019 12:42 am We (family of 7) only exceeded $40k income per year sometime after I began working part time once DS5 was in school. It took a long time for my income to significantly increase our family income, I just surpassed $20k annual income last year!

DH's income has been slow to grow, too. I think he surpassed $40k by himself 2 years ago.


Years back, DH only contributed enough to capture the 5% match. When the recession hit, his employer cut the match, and DH wanted to quit contributing. I wanted to increase his contribution to make up for the lost match! I tweaked his withholdings and health insurance choice, and found enough savings in that to keep the take home nearly the same while doubling the contribution. At tax time, I learned its not just about the tax rate reduction, it can also be about credits that lower AGI make you eligible for. The slightly reduced taxable and AGI made our EITC grow, which in turn made our state EITC grow. So I doubled the contribution again, to 20%. Those increased refundable credits (with CTC for 5 kids) I used to pay down our ugly 9.75% mortgage. I kept finding more savings (couponing, rebates, reduced expenses) to put toward the 401k, to drive up our refundable credits, to pay off our mortgage. Student loans got paid off, more to contribute. I started working very part time, more to contribute. Finally, mortgage was gone, 15+ years early, and i redirected the refundable credits to Roth IRAs for both of us, while DH was now contributing 55% to his 401k to max it out. Then realized the advantages of an HSA, and shifted to max that before trying to max the 401k (cut back on the 401k somewhat as we couldn't fill both, yet). We hit 50, and had higher maxes to stretch for!

My employer didn't offer any benefits, so we saved everything in DH's 401k for both of us early on. I was 43 when I opened a Roth IRA in my name (and slightly later in DH's name), my first retirement account. So our balances are lopsided. Just this year my employer offered a SIMPLE IRA to us, at mid year, so I'm contributing 100% to it this year, and 80% next, to get as much as possible in my name to even the balance somewhat (state tax benefit at withdrawal is per person, so our exemption is half with balances only in DH's name). We've backed off contributions in DH's 401k to compensate.

We've made a lot of progress in roughly 10 years, from contributions of ~$1700/yr then to ~$47k/yr now. Retirement balances went from 1.5 * expenses to 24 * expenses now.
Wow. Thanks for the inspiration.
Triple digit golfer
Posts: 5560
Joined: Mon May 18, 2009 5:57 pm

Re: Too poor to invest - living in the 12% bracket

Post by Triple digit golfer »

teen persuasion wrote: Sun Dec 15, 2019 12:42 am We (family of 7) only exceeded $40k income per year sometime after I began working part time once DS5 was in school. It took a long time for my income to significantly increase our family income, I just surpassed $20k annual income last year!

DH's income has been slow to grow, too. I think he surpassed $40k by himself 2 years ago.


Years back, DH only contributed enough to capture the 5% match. When the recession hit, his employer cut the match, and DH wanted to quit contributing. I wanted to increase his contribution to make up for the lost match! I tweaked his withholdings and health insurance choice, and found enough savings in that to keep the take home nearly the same while doubling the contribution. At tax time, I learned its not just about the tax rate reduction, it can also be about credits that lower AGI make you eligible for. The slightly reduced taxable and AGI made our EITC grow, which in turn made our state EITC grow. So I doubled the contribution again, to 20%. Those increased refundable credits (with CTC for 5 kids) I used to pay down our ugly 9.75% mortgage. I kept finding more savings (couponing, rebates, reduced expenses) to put toward the 401k, to drive up our refundable credits, to pay off our mortgage. Student loans got paid off, more to contribute. I started working very part time, more to contribute. Finally, mortgage was gone, 15+ years early, and i redirected the refundable credits to Roth IRAs for both of us, while DH was now contributing 55% to his 401k to max it out. Then realized the advantages of an HSA, and shifted to max that before trying to max the 401k (cut back on the 401k somewhat as we couldn't fill both, yet). We hit 50, and had higher maxes to stretch for!

My employer didn't offer any benefits, so we saved everything in DH's 401k for both of us early on. I was 43 when I opened a Roth IRA in my name (and slightly later in DH's name), my first retirement account. So our balances are lopsided. Just this year my employer offered a SIMPLE IRA to us, at mid year, so I'm contributing 100% to it this year, and 80% next, to get as much as possible in my name to even the balance somewhat (state tax benefit at withdrawal is per person, so our exemption is half with balances only in DH's name). We've backed off contributions in DH's 401k to compensate.

We've made a lot of progress in roughly 10 years, from contributions of ~$1700/yr then to ~$47k/yr now. Retirement balances went from 1.5 * expenses to 24 * expenses now.
True grit and determination! That is fantastic!
Post Reply