Paying Estimated Taxes in Retirement

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
BarbBrooklyn
Posts: 288
Joined: Fri Aug 24, 2018 9:33 am
Location: NYC

Paying Estimated Taxes in Retirement

Post by BarbBrooklyn » Thu Apr 11, 2019 9:11 am

While doing my last "working year" income taxes yesterday, it occurred to me that I need to keep very careful track that we're making the correct tax payments going forward.

I have a taxable pension, have some sick day and retro pay (Total 77K) and will claim spousal SS benefits in July. (6K for the year)
DH worked for two months this year (total 10K) and is claiming SS (20K for the year) as of March 1.
I have no plans to make any taxable withdrawals from my IRA, 403b or 457.

Is there an easy to use tax estimator out there? b
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

marcopolo
Posts: 2124
Joined: Sat Dec 03, 2016 10:22 am

Re: Paying Estimated Taxes in Retirement

Post by marcopolo » Thu Apr 11, 2019 9:15 am

BarbBrooklyn wrote:
Thu Apr 11, 2019 9:11 am
While doing my last "working year" income taxes yesterday, it occurred to me that I need to keep very careful track that we're making the correct tax payments going forward.

I have a taxable pension, have some sick day and retro pay (Total 77K) and will claim spousal SS benefits in July. (6K for the year)
DH worked for two months this year (total 10K) and is claiming SS (20K for the year) as of March 1.
I have no plans to make any taxable withdrawals from my IRA, 403b or 457.

Is there an easy to use tax estimator out there? b
What did you use to do your taxes? If you used software like TurboTax, they all have "what if" features that can be used to estimate next years taxes.
I am in the same situation, and just used TurboTax to figure out my 4/15 quarterly tax payment amount.

Good luck, and congratulations.
Once in a while you get shown the light, in the strangest of places if you look at it right.

kaneohe
Posts: 5713
Joined: Mon Sep 22, 2008 12:38 pm

Re: Paying Estimated Taxes in Retirement

Post by kaneohe » Thu Apr 11, 2019 9:16 am


Church Lady
Posts: 527
Joined: Sat Jun 28, 2014 7:49 pm

Re: Paying Estimated Taxes in Retirement

Post by Church Lady » Thu Apr 11, 2019 9:20 am

Hi, OP.

It so happens, if you are over 62 when you first retire, you get an exemption from the underpayment penalty on your federal taxes in your 'retirement' year. If this applies to you, you don't need to worry about 2019.

State tax is a different story.

There's Tax Caster: https://turbotax.intuit.com/tax-tools/c ... /taxcaster
which is easy. I find I have to complement that with spread sheets as it doesn't do the nice aggregation of, for example, dividend income, that tax software does.

Good luck!
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.

User avatar
mickeyd
Posts: 4715
Joined: Fri Feb 23, 2007 3:19 pm
Location: Deep in the Heart of South Texas

Re: Paying Estimated Taxes in Retirement

Post by mickeyd » Thu Apr 11, 2019 10:18 am

Since retirement I have used EFTPS to report estimated tax each quarter. I just set up a simple program on Excell, make entries as I earn investment money, RMD and total it up each quarter and report it, then start over the next quarter. I believe in simplicity and this could not be simpler.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle

CurlyDave
Posts: 1069
Joined: Thu Jul 28, 2016 11:37 am

Re: Paying Estimated Taxes in Retirement

Post by CurlyDave » Thu Apr 11, 2019 10:25 am

BarbBrooklyn wrote:
Thu Apr 11, 2019 9:11 am
While doing my last "working year" income taxes yesterday, it occurred to me that I need to keep very careful track that we're making the correct tax payments going forward...
I am very careful to never pay them a nickel before the absolute last minute it is due.

The estimated tax payments they would like you to make are not really required by law. They charge what is called a penalty, but it is really just interest on the money they wanted you to pay early.

Ever since I retired, I have kept the money in my portfolio and I write them one big check on April 15. So far it has worked out that my portfolio return has been larger than the "penalty" so I am a little bit ahead every year...

kaneohe
Posts: 5713
Joined: Mon Sep 22, 2008 12:38 pm

Re: Paying Estimated Taxes in Retirement

Post by kaneohe » Thu Apr 11, 2019 10:27 am

Church Lady wrote:
Thu Apr 11, 2019 9:20 am
Hi, OP.

It so happens, if you are over 62 when you first retire, you get an exemption from the underpayment penalty on your federal taxes in your 'retirement' year. If this applies to you, you don't need to worry about 2019.

..........................................................................................................
news to me........................got a link? or tell me more

TBillT
Posts: 696
Joined: Sat Sep 17, 2011 1:43 pm

Re: Paying Estimated Taxes in Retirement

Post by TBillT » Thu Apr 11, 2019 10:31 am

I use the EFTPS web site and adjust amounts through the year.
I am not too scientific or exact but I estimate my income and pay accordngly.

MnD
Posts: 4287
Joined: Mon Jan 14, 2008 12:41 pm

Re: Paying Estimated Taxes in Retirement

Post by MnD » Thu Apr 11, 2019 10:35 am

BarbBrooklyn wrote:
Thu Apr 11, 2019 9:11 am
While doing my last "working year" income taxes yesterday, it occurred to me that I need to keep very careful track that we're making the correct tax payments going forward.

I have a taxable pension, have some sick day and retro pay (Total 77K) and will claim spousal SS benefits in July. (6K for the year)
DH worked for two months this year (total 10K) and is claiming SS (20K for the year) as of March 1.
I have no plans to make any taxable withdrawals from my IRA, 403b or 457.

Is there an easy to use tax estimator out there? b
I'm using this. Pick your state it gives a nice estimated federal _and_ state tax estimate and includes any state tax breaks for retirement income.
The pension income entry requires one additional click under the other entries.
It does not have a spot to enter long-term capital gain rate income but that's pretty easy to add manually.
I'm sure it's not perfect but I'm not obsessed with being exact on estimates.
https://smartasset.com/retirement/retirement-taxes

User avatar
RickBoglehead
Posts: 3198
Joined: Wed Feb 14, 2018 9:10 am

Re: Paying Estimated Taxes in Retirement

Post by RickBoglehead » Thu Apr 11, 2019 10:38 am

kaneohe wrote:
Thu Apr 11, 2019 10:27 am
Church Lady wrote:
Thu Apr 11, 2019 9:20 am
Hi, OP.

It so happens, if you are over 62 when you first retire, you get an exemption from the underpayment penalty on your federal taxes in your 'retirement' year. If this applies to you, you don't need to worry about 2019.

..........................................................................................................
news to me........................got a link? or tell me more
https://www.irs.gov/taxtopics/tc306

The law allows the IRS to waive the penalty if:

2) You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect, or
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

The Wizard
Posts: 13355
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Paying Estimated Taxes in Retirement

Post by The Wizard » Thu Apr 11, 2019 10:40 am

Step one for the OP is to estimate your AGI for the year and it sounds like you have a good handle on that already.
With the new SALT limitation and standard deduction, it's easier for many of us to estimate our total tax from our AGI than it used to be.

I would recommend setting up withholding for regular monthly income streams such as pension and SS. And then use estimated tax payments for irregular income. That's what I do to cover my December Roth conversion amount...
Attempted new signature...

GAAP
Posts: 854
Joined: Fri Apr 08, 2016 12:41 pm

Re: Paying Estimated Taxes in Retirement

Post by GAAP » Thu Apr 11, 2019 11:24 am

The Wizard wrote:
Thu Apr 11, 2019 10:40 am
I would recommend setting up withholding for regular monthly income streams such as pension and SS. And then use estimated tax payments for irregular income. That's what I do to cover my December Roth conversion amount...
That's been my general thought until recently. Now, I'm leaning toward minimizing withholding, and just doing even quarterly estimates. I'm doing Roth conversions to hit the bracket limit, so I should know fairly well what the total will be. Using estimates basically keeps the money invested longer -- I know, chump change, but still...
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

aristotelian
Posts: 5802
Joined: Wed Jan 11, 2017 8:05 pm

Re: Paying Estimated Taxes in Retirement

Post by aristotelian » Thu Apr 11, 2019 11:31 am

Do you use Turbotax? You can just change any numbers on your 2018 return that you expect to be different this year.

User avatar
CAsage
Posts: 1279
Joined: Sun Mar 27, 2016 6:25 pm

Re: Paying Estimated Taxes in Retirement

Post by CAsage » Thu Apr 11, 2019 1:55 pm

You can get a super accurate number using www.excel1040.com (downloadable excel template, updated to an exquisitely precise degree). That's free. Personally, I have a simple excel model which I use for planning, and update it when the tax brackets are published (well known for federal each tax year, but California publishes the current year around October 1). I predict future tax brackets with an inflation adjustment of 2~3%. I pay 100% state and federal taxes via IRA withdrawal holding in December. But my goal is to draw down my IRA as fast as possible, and save my after tax money for something else.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

User avatar
friar1610
Posts: 1473
Joined: Sat Nov 29, 2008 9:52 pm
Location: MA South Shore

Re: Paying Estimated Taxes in Retirement

Post by friar1610 » Thu Apr 11, 2019 2:16 pm

To me, quarterly estimated taxes are a PITA. So I just make an educated guess on what my interest and dividend income is going to be for the year and adjust the state and federal withholding from my pension accordingly. So far I've been very close and I've either owed a very few bucks or gotten a very few back each year. You can use SS the same way for federal taxes but not for state. I have taxes from my RMDs witthhed at the same time I take them. The only outlier for me is if I redeem equity shares (which I rarely do) and incur a tax liability. In those cases I send in one "quarterly" estimated tax payment to cover it. I just find life is simpler the more things are on automatic.
Friar1610

Boglegrappler
Posts: 1161
Joined: Wed Aug 01, 2012 9:24 am

Re: Paying Estimated Taxes in Retirement

Post by Boglegrappler » Thu Apr 11, 2019 2:24 pm

I've used this calculator from time to time. I also hand-checked it against turbo tax. It seems decently accurate. Takes a bit of getting used to the format. You'll have to do your own calculation about withholding and estimates, but this one will let you know what your federal tax bill will be if you give it the correct income and other information.


https://www.dinkytown.net/java/1040-tax-calculator.html

cherijoh
Posts: 5785
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Paying Estimated Taxes in Retirement

Post by cherijoh » Thu Apr 11, 2019 2:26 pm

BarbBrooklyn wrote:
Thu Apr 11, 2019 9:11 am
While doing my last "working year" income taxes yesterday, it occurred to me that I need to keep very careful track that we're making the correct tax payments going forward.

I have a taxable pension, have some sick day and retro pay (Total 77K) and will claim spousal SS benefits in July. (6K for the year)
DH worked for two months this year (total 10K) and is claiming SS (20K for the year) as of March 1.
I have no plans to make any taxable withdrawals from my IRA, 403b or 457.

Is there an easy to use tax estimator out there? b
Last year was my last working year. I worked through mid April. Other taxable income was generated by Roth conversions and sales of stock index funds (resulting in LT cap gains). I didn't make a 1Q estimated tax payment, but did the other 3 quarters to cover my previous year's tax burden. So I took (2017 tax - 2018 withholding from my job)/ 3 quarters and rounded up to the nearest $10.

However my taxes for 2017 were abnormally low because I had funded a Donor Advised Fund to be used in my early retirement years - so I ended up getting rather large refunds in 2017. Then I did extra Roth conversions when the stock market tanked in 4Q 2018, so I ended up owing $$ for 2018. (In previous years my income had been fairly stable, so I'd tweak my W-4 and either get a small refund or owe a small amount).

Initially, Turbotax found that I owed an underpayment penalty for Federal. :annoyed The first option to reduce the penalty was to enter all my income based on when I received it. Since my estimated penalty was $10, I decided not to waste the time calculating my cumulative income by month. (That would have neccessitated pulling up monthly statements from my credit union, Ally Bank, and all my different VG accounts).

But fortunately, TT then asked it I wanted to assign my withholding to the correct time period. The default is to spread withholding throughout the year (which is normally an advantage), but in my case that made it appear that I hadn't paid enough taxes on 1Q income (primarilay W-2 wages). Calculating the withholding was much easier than income, since all my withholding came from 1 W-2 and all but a smidgeon was collected by April 15th. So I decided to give that option a try. This did the trick and it reduced my penalty to zero. TT noted that even though I didn't owe a penalty, I needed to file the form to calculate the penalty (Form 2210?).

I ended up with the same issue on state, although I owed a bigger penalty on a smaller taxable amount. I was again able to avoid a penalty by assigning my withholding to the proper quarter.

This may affect you as well since you will be working part of the year and presumably will front load both your income and withholding.

quantAndHold
Posts: 3438
Joined: Thu Sep 17, 2015 10:39 pm

Re: Paying Estimated Taxes in Retirement

Post by quantAndHold » Thu Apr 11, 2019 2:31 pm

I have tax withheld from wife’s social security and RMD’s, then pay estimated tax on any lumpy income (Roth conversions, stock sales, etc) at the end of the quarter when they happen.

I took the estimated tax worksheets from both the feds and the state, and created a spreadsheet where I can plug in the income for the quarter and figure out how much I need to pay for that quarter.

User avatar
Peter Foley
Posts: 4899
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Paying Estimated Taxes in Retirement

Post by Peter Foley » Thu Apr 11, 2019 2:42 pm

Not mentioned in this conversation/thread is the fact that the OP will have earned income this year. An option might be to make a contribution to an IRA for 2019 if enough hasn't been withheld.

I created my own tax estimator with Excel using Turbo Tax's 2 year summary as a basis.

User avatar
jeffyscott
Posts: 8015
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Paying Estimated Taxes in Retirement

Post by jeffyscott » Thu Apr 11, 2019 3:06 pm

GAAP wrote:
Thu Apr 11, 2019 11:24 am
The Wizard wrote:
Thu Apr 11, 2019 10:40 am
I would recommend setting up withholding for regular monthly income streams such as pension and SS. And then use estimated tax payments for irregular income. That's what I do to cover my December Roth conversion amount...
That's been my general thought until recently. Now, I'm leaning toward minimizing withholding, and just doing even quarterly estimates. I'm doing Roth conversions to hit the bracket limit, so I should know fairly well what the total will be. Using estimates basically keeps the money invested longer -- I know, chump change, but still...
I too am converting based on tax bracket, so know that my taxes and income will be the same each year. I am using solely withholding to meet the tax payment requirements. I have additional Federal and State taxes withheld from pension so that the total will be about equal previous year, since taxes should be about the same each year, as our income each year will be right at the top of the 12% bracket due to Roth conversion strategy.
Time is your friend; impulse is your enemy. - John C. Bogle

Lowgear
Posts: 1
Joined: Sat Feb 09, 2019 12:40 pm

Re: Paying Estimated Taxes in Retirement

Post by Lowgear » Thu Apr 11, 2019 3:39 pm

For me it’s easier just to make a simple computation to ensure that 110 percent of the amount of our 2018 taxes owed is either withheld or paid as estimated through EFTPS for 2019. This should avoid any penalty for 2019 so I don’t worry about underpaying. I don’t try to estimate what I will owe in 2019. Maybe I would not do this if I anticipated a big drop in income. Last year I did make an exception and paid more estimated tax than 110 percent of the previous year because I started receiving Social Security but I don’t think that was necessary.

User avatar
beyou
Posts: 2643
Joined: Sat Feb 27, 2010 3:57 pm
Location: Northeastern US

Re: Paying Estimated Taxes in Retirement

Post by beyou » Thu Apr 11, 2019 4:21 pm

mickeyd wrote:
Thu Apr 11, 2019 10:18 am
Since retirement I have used EFTPS to report estimated tax each quarter. I just set up a simple program on Excell, make entries as I earn investment money, RMD and total it up each quarter and report it, then start over the next quarter. I believe in simplicity and this could not be simpler.
+ 1 same here

User avatar
ResearchMed
Posts: 8928
Joined: Fri Dec 26, 2008 11:25 pm

Re: Paying Estimated Taxes in Retirement

Post by ResearchMed » Thu Apr 11, 2019 4:38 pm

BarbBrooklyn wrote:
Thu Apr 11, 2019 9:11 am
While doing my last "working year" income taxes yesterday, it occurred to me that I need to keep very careful track that we're making the correct tax payments going forward.

I have a taxable pension, have some sick day and retro pay (Total 77K) and will claim spousal SS benefits in July. (6K for the year)
DH worked for two months this year (total 10K) and is claiming SS (20K for the year) as of March 1.
I have no plans to make any taxable withdrawals from my IRA, 403b or 457.

Is there an easy to use tax estimator out there? b
In the future, when you *do* start taking taxable withdrawals from IRA/403b/etc., you could do that at the end of the year, and have as much as needed withheld (say, in late Nov or early Dec) to make up any tax shortfall.
Withholding will be assumed as though paid throughout the year, so it can cover previous quarters, too, without penalty.

OR... if you don't plan to take taxable withdrawals for a while, you could still do that with your IRA, and then use the 60-day (strict!) deadline to replace the money. So you could have all/almost all (depending upon retirement fund vendor policies) withheld as tax, and then replace the money from your regular assets.
You can do this once per year, so be careful about both the 60 day deadline, and not doing it "too soon" the next year, if it's again necessary.

We've done this at the end of the year to even up occasional withholding shortfalls from consulting income.

RM
This signature is a placebo. You are in the control group.

kaneohe
Posts: 5713
Joined: Mon Sep 22, 2008 12:38 pm

Re: Paying Estimated Taxes in Retirement

Post by kaneohe » Thu Apr 11, 2019 7:45 pm

RickBoglehead wrote:
Thu Apr 11, 2019 10:38 am
kaneohe wrote:
Thu Apr 11, 2019 10:27 am
Church Lady wrote:
Thu Apr 11, 2019 9:20 am
Hi, OP.

It so happens, if you are over 62 when you first retire, you get an exemption from the underpayment penalty on your federal taxes in your 'retirement' year. If this applies to you, you don't need to worry about 2019.

..........................................................................................................
news to me........................got a link? or tell me more
https://www.irs.gov/taxtopics/tc306

The law allows the IRS to waive the penalty if:

2) You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect, or
Thanks for the link......was not aware of that. Doesn't exactly sound like an exemption tho......all the power is w/ IRS to forgive.
I'd rather rely on safe harbor where I have the control.

prairieman
Posts: 129
Joined: Thu Mar 01, 2018 3:17 pm

Re: Paying Estimated Taxes in Retirement

Post by prairieman » Thu Apr 11, 2019 8:02 pm

I estimated way too low and accidentally missed a payment. I was worried but don’t care anymore because the only thing that happened was a small insignificant penalty. I’m sure I came out way ahead.

Church Lady
Posts: 527
Joined: Sat Jun 28, 2014 7:49 pm

Re: Paying Estimated Taxes in Retirement

Post by Church Lady » Thu Apr 25, 2019 12:02 pm

kaneohe wrote:
Thu Apr 11, 2019 10:27 am
Church Lady wrote:
Thu Apr 11, 2019 9:20 am
Hi, OP.

It so happens, if you are over 62 when you first retire, you get an exemption from the underpayment penalty on your federal taxes in your 'retirement' year. If this applies to you, you don't need to worry about 2019.

..........................................................................................................
news to me........................got a link? or tell me more
Sure! In this publication: https://www.irs.gov/pub/irs-pdf/i2210.pdf

find this paragraph:
Waiver of Penalty
If you have an underpayment, all or part of the penalty for that
underpayment will be waived if the IRS determines that:
• In 2017 or 2018, you retired after reaching age 62 or became
disabled, and your underpayment was due to reasonable cause
(and not willful neglect), or
The IRS could quibble over 'reasonable cause' but if the underpayment is not egregious, I'd reckon they let most underpayments for first year retirees slide. Examples of egregious underpayment (in my opinion) would be incurring a substantial tax liability in Q1, but paying nothing until Q4 or until filing.

Of course, I'm not the IRS and maybe my opinion is worth what you paid for it :) . The fact they allow an exception to the penalty at all in the first year of retirement is telling.

Sorry I did not see this sooner. Good luck!
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.

pascalwager
Posts: 1476
Joined: Mon Oct 31, 2011 8:36 pm

Re: Paying Estimated Taxes in Retirement

Post by pascalwager » Mon Apr 29, 2019 2:16 pm

CurlyDave wrote:
Thu Apr 11, 2019 10:25 am
BarbBrooklyn wrote:
Thu Apr 11, 2019 9:11 am
While doing my last "working year" income taxes yesterday, it occurred to me that I need to keep very careful track that we're making the correct tax payments going forward...
I am very careful to never pay them a nickel before the absolute last minute it is due.

The estimated tax payments they would like you to make are not really required by law. They charge what is called a penalty, but it is really just interest on the money they wanted you to pay early.

Ever since I retired, I have kept the money in my portfolio and I write them one big check on April 15. So far it has worked out that my portfolio return has been larger than the "penalty" so I am a little bit ahead every year...
This has basically been my approach too. I don't like sending big checks based on estimates into the "ether" each quarter and don't want to increase my pension withholding.

User avatar
jeffyscott
Posts: 8015
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Paying Estimated Taxes in Retirement

Post by jeffyscott » Tue Apr 30, 2019 9:19 am

pascalwager wrote:
Mon Apr 29, 2019 2:16 pm
CurlyDave wrote:
Thu Apr 11, 2019 10:25 am
I am very careful to never pay them a nickel before the absolute last minute it is due.

The estimated tax payments they would like you to make are not really required by law. They charge what is called a penalty, but it is really just interest on the money they wanted you to pay early.

Ever since I retired, I have kept the money in my portfolio and I write them one big check on April 15. So far it has worked out that my portfolio return has been larger than the "penalty" so I am a little bit ahead every year...
This has basically been my approach too. I don't like sending big checks based on estimates into the "ether" each quarter and don't want to increase my pension withholding.
With the penalty/interest set at 0.5% per month, this is like borrowing at a 6% interest rate in order to invest for 1 year or less. That seems like a questionable choice to me.
Time is your friend; impulse is your enemy. - John C. Bogle

kaneohe
Posts: 5713
Joined: Mon Sep 22, 2008 12:38 pm

Re: Paying Estimated Taxes in Retirement

Post by kaneohe » Tue Apr 30, 2019 1:42 pm

jeffyscott wrote:
Tue Apr 30, 2019 9:19 am
pascalwager wrote:
Mon Apr 29, 2019 2:16 pm
CurlyDave wrote:
Thu Apr 11, 2019 10:25 am
I am very careful to never pay them a nickel before the absolute last minute it is due.

The estimated tax payments they would like you to make are not really required by law. They charge what is called a penalty, but it is really just interest on the money they wanted you to pay early.

Ever since I retired, I have kept the money in my portfolio and I write them one big check on April 15. So far it has worked out that my portfolio return has been larger than the "penalty" so I am a little bit ahead every year...
This has basically been my approach too. I don't like sending big checks based on estimates into the "ether" each quarter and don't want to increase my pension withholding.
With the penalty/interest set at 0.5% per month, this is like borrowing at a 6% interest rate in order to invest for 1 year or less. That seems like a questionable choice to me.
That wouldn't be my choice either but it may be less ominous than it looks since the estimated payments are spread out over time so the
"effective" rate may be more like 4% . Still challenging tho.............

CurlyDave
Posts: 1069
Joined: Thu Jul 28, 2016 11:37 am

Re: Paying Estimated Taxes in Retirement

Post by CurlyDave » Fri May 03, 2019 2:07 am

jeffyscott wrote:
Tue Apr 30, 2019 9:19 am

...With the penalty/interest set at 0.5% per month, this is like borrowing at a 6% interest rate in order to invest for 1 year or less. That seems like a questionable choice to me.
I don't think that is the correct analysis.

While you are right that in any one tax year the time frame is less than one year, I started this many years ago, and I will repeat the exercise every year for the remainder of my life.

The historic CAGR for stocks is ~10.5%. In any given year I may well get zapped. But over the span of many years I am going to come out ahead. Over a long enough period I get a 4+% return.

It is sort of like being the house in a casino game. Any one bet may have to be paid off to the customer (sucker). But if enough people make enough bets, the odds being in the house's favor mean that they will make money.

Thesaints
Posts: 2827
Joined: Tue Jun 20, 2017 12:25 am

Re: Paying Estimated Taxes in Retirement

Post by Thesaints » Fri May 03, 2019 2:25 am

CurlyDave wrote:
Fri May 03, 2019 2:07 am
The historic CAGR for stocks is ~10.5%.
Good luck counting on that going forward.

CurlyDave
Posts: 1069
Joined: Thu Jul 28, 2016 11:37 am

Re: Paying Estimated Taxes in Retirement

Post by CurlyDave » Fri May 03, 2019 2:38 am

Thesaints wrote:
Fri May 03, 2019 2:25 am
CurlyDave wrote:
Fri May 03, 2019 2:07 am
The historic CAGR for stocks is ~10.5%.
Good luck counting on that going forward.
I have been reading articles that express a pessimistic view for a decade.

For the past 3 years the CAGR for SPY has been 13.38%, 5 years 10.78%, 10 years 15.83%. I view 10.5% going forward as a conservative estimate.

1. What number do you suggest as being more likely?

2. For my method to work, all I have to beat is the 0.5%/month that the IRS charges, and that is nominal return, not inflation-adjusted. Are you really suggesting that we should count on less than 6% CAGR going forward?

3. Since I have been doing this for a decade, I am pretty far ahead of the game.

Post Reply