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mephistophles
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Post by mephistophles » Thu Oct 22, 2009 11:09 pm

Mel Lindauer wrote:There doesn't seem to be a discussion tab for Chapter 18, but someone incorrectly claimed on the wiki that equity-indexed annuities are fixed annuities, and that's not how the SEC defines them. Here's what the SEC site says about equity-indexed annuities:
An equity-indexed annuity is a special type of annuity. During the accumulation period – when you make either a lump sum payment or a series of payments – the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.

Variable annuities are securities regulated by the SEC. Fixed annuities are not securities and are not regulated by the SEC. Equity-indexed annuities combine features of traditional insurance products (guaranteed minimum return) and traditional securities (return linked to equity markets). Depending on the mix of features, an equity-indexed annuity may or may not be a security. The typical equity-indexed annuity is not registered with the SEC.

You can learn more about variable annuities by reading our publication, Variable Annuities: What You Should Know. You can learn more about equity-indexed annuities by reading our online brochure, which explains equity-indexed annuities and provides resources for obtaining additional information.


http://www.sec.gov/answers/annuity.htm
Here's the "online brochure" mentioned in the last paragraph:
Equity-Indexed Annuities
Are you considering buying an equity-indexed annuity? This brochure explains equity-indexed annuities and provides resources for obtaining additional information.

What is an equity-indexed annuity?
An equity-indexed annuity is a special type of contract between you and an insurance company. During the accumulation period – when you make either a lump sum payment or a series of payments – the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.

Can you lose money buying an equity-indexed annuity?
You can lose money buying an equity-indexed annuity, especially if you need to cancel your annuity early. Even with a guarantee, you can still lose money if your guarantee is based on an amount that’s less than the full amount of your purchase payments. In many cases, it will take several years for an equity-index annuity’s minimum guarantee to “break even.”

You also may have to pay a significant surrender charge and tax penalties if you cancel early. In addition, in some cases, insurance companies may not credit you with index-linked interest if you do not hold your contract to maturity.

What are some of the contract features of equity-indexed annuities?
Equity-indexed annuities are complicated products that may contain several features that can affect your return. You should fully understand how an equity-indexed annuity computes its index-linked interest rate before you buy. An insurance company may credit you with a lower return than the actual index’s gain. Some common features used to compute an equity-indexed annuity’s interest rate include:

Participation Rates. The participation rate determines how much of the index’s increase will be used to compute the index-linked interest rate. For example, if the participation rate is 80% and the index increases 9%, the return credited to your annuity would be 7.2% (9% x 80% = 7.2%).

Interest Rate Caps. Some equity-indexed annuities set a maximum rate of interest that the equity-indexed annuity can earn. If a contract has an upper limit, or cap, of 7% and the index linked to the annuity gained 7.2%, only 7% would be credited to the annuity.

Margin/Spread/Administrative Fee. The index-linked interest for some annuities is determined by subtracting a percentage from any gain in the index. This fee is sometimes called the “margin,” “spread,” or “administrative fee.” In the case of an annuity with a “spread” of 3%, if the index gained 9%, the return credited to the annuity would be 6% (9% - 3% = 6%).

Another feature that can have a dramatic impact on an equity-indexed annuity’s return is its indexing method (or how the amount of change in the relevant index is determined). Some common indexing methods include:

Annual Reset (or Ratchet). This method credits index-linked interest based on any increase in index value from the beginning to the end of the year.

Point-to-Point. This method credits index-linked interest based on any increase in index value from the beginning to the end of the contract’s term.

High Water Mark. This method credits index-linked interest based on any increase in index value from the index level at the beginning of the contract’s term to the highest index value at various points during the contract’s term, often annual anniversaries of when you purchased the annuity.

These and other features may be included in an equity-indexed annuity you are considering. Before you decide to buy an equity-indexed annuity, you should understand how each feature works and what impact, together with other features, it may have on the annuity’s potential return.

Who should I contact if I have a problem?
You can send us your complaint using our online complaint form at www.sec.gov/complaint.shtml. You can also reach us by regular mail at:

Securities and Exchange Commission
Office of Investor Education and Advocacy
100 F Street, N.E.
Washington, D.C. 20549-0213
That someone is me. Equity indexed annuities are fixed annuities that mimic some of the characteristics of variable annuities. Historically agents did not have to be NASD securities licensed to sell Equity Indexed Annuities because they were not regulated by the SEC. This all may change as consumers are often mislead into thinking they are buying a security.

Mel, my name should be on the WIKI page where I made the correction on this.

ole meph

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Re: EIAs

Post by Mel Lindauer » Fri Oct 23, 2009 9:53 am

Barry Barnitz wrote:
I am one of the two authors who wrote Chapter 18, and I wrote the portion saying equity indexed annuities were a form of variable annuities. One of the reasons I called them an onerous investment is that people don't seem to be even able to agree on the definition of them.
True. They are best described, perhaps, as a hybrid annuity. They are more accurately defined as a form of fixed annuity. Describing how the annuity works, with all of its downsides, is legitimate.
Unlike fixed contracts, variable annuities are securities registered with the Securities and Exchange Commission (SEC).
EIAs are not considered variable annuities, are not considered securities and are not registered with SEC. This is the current stature of the law.
Perhaps the best indicator of this status is the fact that EIAs can be sold by insurance salemen without a securities license while they must have the license in order to sell variable annuities.

Meph will hopefully weigh in.

regards,
You seem to be overlooking this statement from the SEC, Barry and Lee:
Depending on the mix of features, an equity-indexed annuity may or may not be a security.
I agree with Dale. Regardless of how the insurance company handles this hybrid product doesn't really change the fact that, as far as an investor is concerned, this is a "variable" annuity. And it looks like the SEC agrees, since it is moving to regulate them as "securities".

Investors (our readers) think of "fixed annuities" as CD-like, with a known yeild and return that can be calcuated to maturity at the time of purchase.
Best Regards - Mel | | Semper Fi

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Re: EIAs

Post by tfb » Fri Oct 23, 2009 10:22 am

Mel Lindauer wrote:You seem to be overlooking this statement from the SEC, Barry and Lee:
Depending on the mix of features, an equity-indexed annuity may or may not be a security.
I agree with Dale. Regardless of how the insurance company handles this hybrid product doesn't really change the fact that, as far as an investor is concerned, this is a "variable" annuity. And it looks like the SEC agrees, since it is moving to regulate them as "securities".

Investors (our readers) think of "fixed annuities" as CD-like, with a known yeild and return that can be calcuated to maturity at the time of purchase.
Whatever the investors feel like does not make it so. A Cash Balance Plan feels like a defined contribution plan, but it's a defined benefit plan.
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Mel:

Post by Barry Barnitz » Fri Oct 23, 2009 10:26 am

We will have to respectfully disagree. Facts are facts, opinions are opinions.

Mephs response in the wiki:
From Lee Marshall, aka ole meph. I am an expert in this area. You are wrong. There are no opinions on this. Fact is that equity indexed annuities are classified as a form of fixed annuity. See Barry Barnitz's remarks in the post on the main forum. While they may be treated as a security in the future, they have not been in the past.

A reference from Lee Marshall from the National Association of Insurance Commissioners--the people who regulate insurance and annuity products at the state level:

NAIC and Affiliates NAIC, Affiliates and Members InsureU NAIC NIPR SBS SERFF Committee Activity Education & Training NAIC Meetings Summaries NAIC News Releases NAIC Publications & Data:

Seniors:Educate Yourself on Annuities- 12k - 2009-09-14 -
Equity-Indexed Annuity:
A variation of a fixed annuity where the interest rate is based on an outside index, such as a stock market index
We can agree that the SEC, like all bureaucracies, wishes to extend its sweep and power.

regards
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Post by mephistophles » Fri Oct 23, 2009 3:09 pm

Equity Index Annuities, (EIA) were created by the insurance industry as a fixed annuity variation. Fixed annuities and fixed life insurance are regulated at the state level by State Insurance Commissioners. These products are not regulated at the Federal level by the SEC. It is true that the SEC wants to reclassify Equity Indexed Annuities as variable annuities so they can also regulate them at the federal level.

Even thought, EIAs are fixed annuities, it is a fact that the consumer doesn't have a clue about annuities and perhaps typically thinks they have bought into a stock market investment with a fixed interest guarantee. So, it is my opinion that EIA's should either be banned or reclassified as a form of variable annuity which would allow supervision by the SEC. Now, if the SEC does a better job than it has done with Bernie Madoff it would come down hard on the companies and agents who sell them and you would likely see them dissapear from the market.

Fact is, I have sold annuities, where appropriate, for four decades. Fact is, I have never sold an EIA as I consider them an inferior product, subject to misunderstanding and misuse.
ole meph

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Post by northend » Sat Oct 24, 2009 11:52 am

Page 24 and 25 Qualified dividends and capital gains tax rates are zero and 15%.

http://www.irs.gov/publications/p17/ch08.html

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added to wiki

Post by Barry Barnitz » Sat Oct 24, 2009 2:12 pm

Printers errors in Chapter Two, Understanding Taxes (Norman S. Janoff), are recorded on the wiki. Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.

In addition, a discussion on correct 1099-INT and 1099-DIV filings has been posted. Please see Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.

regards,
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Re: added to wiki

Post by Mel Lindauer » Sat Oct 24, 2009 2:41 pm

Barry Barnitz wrote:Printers errors in Chapter Two, Understanding Taxes (Norman S. Janoff), are recorded on the wiki. Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.

In addition, a discussion on correct 1099-INT and 1099-DIV filings has been posted. Please see Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.

regards,
Hi Barry:

I OK'd the two printer's errors where they ran two words together.
Best Regards - Mel | | Semper Fi

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Post by LadyGeek » Wed Oct 28, 2009 4:24 pm

Additional discussions regarding "self-settled trusts" in Chapter 16, page 268, are in this thread: possible Bogleheads Guide to Retirement typo? (Further discussions should continue here.)

Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.

Please see Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.
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Post by LadyGeek » Sun Nov 08, 2009 12:26 pm

From a PM request by Mel Lindauer, a correction to the spelling of Champaign-Urbana IL on page 15 is needed.

* From: "Moving to another town may also reduce costs. For example, moving from Chicago to Champagne-Urbana, Illinois . . ."
* To: "Moving to another town may also reduce costs. For example, moving from Chicago to Champaign-Urbana, Illinois . . ."

From wikipedia: Champaign-Urbana Metropolitan Area

Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.
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Post by tfb » Sun Nov 08, 2009 1:28 pm

Can we get our authors to either accept or reject the items pending author concurrence currently on the wiki page?
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Post by LadyGeek » Sun Nov 08, 2009 1:41 pm

Since this is a published book, the authors have final say on content. I thought it would be in the best interest of the authors (and the publisher) to be sure the authors agree with corrections by others.

If this was a normal wiki page (community effort), no concurrence would be requested.
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Method for corrections

Post by Taylor Larimore » Sun Nov 08, 2009 1:48 pm

tfb wrote:Can we get our authors to either accept or reject the items pending author concurrence currently on the wiki page?
Hi tfb:

I don't think this is workable. The book's many authors don't all follow these corrections as they are posted. Even if they did, and the chapter author concur, the book's primary editors (of which I am one) would have to agree as will Wiley's editors.

"The Bogleheads' Guide to Retirement Planning" is a very inclusive book with countless facts and figures by dozens of very will informed contributors working together.

We very much appreciate all corrections, and will carefully consider each one when (and if) subsequent editions are published.
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Re: Method for corrections

Post by tfb » Sun Nov 08, 2009 2:07 pm

Taylor Larimore wrote:
tfb wrote:Can we get our authors to either accept or reject the items pending author concurrence currently on the wiki page?
Hi tfb:

I don't think this is workable. The book's many authors don't all follow these corrections as they are posted. Even if they did, and the chapter author concur, the book's primary editors (of which I am one) would have to agree as will Wiley's editors.

"The Bogleheads' Guide to Retirement Planning" is a very inclusive book with countless facts and figures by dozens of very will informed contributors working together.

We very much appreciate all corrections, and will carefully consider each one when (and if) subsequent editions are published.
What I meant was rounding up the authors and periodically review the suggested corrections. If they are acceptable, accept them. Or else reject them with a response. Otherwise what's the point of posting suggested corrections if they simply go nowhere? Some of the suggested corrections have already been agreed to while others have been rejected. I'm only suggesting that all suggested corrections be properly dealt with rather than leaving them hanging out there to dry.
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Post by AzRunner » Sun Nov 08, 2009 8:55 pm

tomd
If anyone is interested in corrections; Chapter 3 refers to personal exemptions for yourself, your spouse, and your children. A personal exemption is only for yourself and your spouse. A dependent exemption is for your other qualified dependents such as your child.

State sales taxes do exceed 6.25 percent. Here in Tennessee the state sales tax is 7.00 percent, to which the local sales tax is added. We pay a total of 9.25% in my locality. As mentioned in the book, we do not have an income tax, but rather a tax on certain interest and dividend income.
I agree with these corrections.

I think I just took a short-cut lumping the dependent exemption with the personal exemption, but the correction is correct and more precise.

I'm not sure how I missed the Tennessee state sales tax, unless it increased after the summary table of state sales taxes was published. Anyway, as stated, it is 7%.

Norm

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Post by AzRunner » Sun Nov 08, 2009 9:10 pm

From the wiki:
From David Grabiner: p. 24, Interest Income: Private purpose municipal bonds are still tax-exempt; they are subject to the AMT, and your mutual fund will notify you if it holds such bonds.
I cite this from www.allbusiness.com/glossaries
private purpose bond
category of municipal bond distinguished from public purpose bond in the tax reform act of 1986 because 10% or more of the bond's benefit goes to private activities or 5% of the proceeds (or $5 million if less) are used for loans to parties other than governmental units. Private purpose obligations, which are also called private activity bonds or nonessential function bonds, are taxable unless their use is specifically exempted. Even tax-exempt permitted private activity bonds, if issued after August 7, 1986, are tax preference items , except those issued for 501(c)(3) organizations (hospitals, colleges, universities). Private purpose bonds specifically prohibited from tax-exemption effective August 15, 1986, include those for sports, trade, and convention facilities and large-issue (over $1 million) Industrial Development Bonds . Permitted issues, except those for 501(c)(3) organizations, airports, docks, wharves, and government-owned solid-waste disposal facilities, are subject to volume caps.
The text specifically say, "The exception are private purpose bonds used to finance such projects as a sports stadium",
therefore, I do not agree with the proposed change.

Norm

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Post by AzRunner » Sun Nov 08, 2009 9:16 pm

The section, Interest Income p.24, mentions interest from bank accounts, certificate of deposits, and taxable money market funds as being reported on a 1099-INT form. This is incorrect, as taxable money market fund dividends are reported on a form 1099-DIV, as are stock and bond mutual fund dividends. Actually, interest from bank accounts, certificate of deposits, taxable money market instruments, and taxable bonds are reported on a 1099-INT. --Blbarnitz 19:05, 24 October 2009 (UTC)
Agreed.

Norm

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Post by AzRunner » Sun Nov 08, 2009 9:24 pm

From David Grabiner: p. 25: If you have a stock mutual fund which pays dividends, both you and the fund must satisfy the 61-day rule for the dividend to be qualified.
Agreed.

Norm

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Post by Peter Foley » Sun Nov 08, 2009 10:58 pm

I'm the author of Chapter 1. I accept that Champaign-Urbana is misspelled. (I'm not sure we need an author's concurrence on a misspelled word or place name.)

Per Webster:
"Champagne" is a light, sparkling, effervescent wine.
"Champaign" is flat, open country.

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Post by LadyGeek » Mon Nov 09, 2009 7:57 pm

Chapter 1 - Mel later informed me that typo's don't need author's concurrence.

In my line of work (technical documentation), the author needs to approve everything. I kept the concurrences to let readers know that the authors are aware of the error.
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Post by Mel Lindauer » Mon Nov 09, 2009 8:12 pm

LadyGeek wrote:Chapter 1 - Mel later informed me that typo's don't need author's concurrence.

In my line of work (technical documentation), the author needs to approve everything. I kept the concurrences to let readers know that the authors are aware of the error.
I'm glad when the authors do confirm any errors posted. However, if the author doesn't reply, we still want to make sure all typos are corrected. On the other hand, any corrections of factual information should have the authors' OK.
Best Regards - Mel | | Semper Fi

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Post by LadyGeek » Tue Feb 23, 2010 5:56 pm

A correction to Figure 9.1 (Chapter 9) has just been added. The title "Equity to Maximum Loss Starting with $100,000" is misleading and should be "Equity to Tolerable Loss Starting with $100,000".

Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.
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Post by mptfan » Tue May 18, 2010 2:11 pm

I don't understand the book printing business...

When will the corrections be made? Are there new copies being printed continuously? If so, are the corrections incorporated before the new copies are printed? Will there be different editions?

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Post by robolove » Mon Nov 01, 2010 9:12 pm

Is there a BH amazon referral link?

I will purchase this book for my father via Amazon. He wants to retire this or next year. I have no idea what his plan is like. I hope he is in good shape or not too late...

Edit: Found it

http://www.amazon.com/Bogleheads-Guide- ... adswiki-20

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Post by ThePrune » Sat Nov 20, 2010 2:43 pm

I believe there is a minor technical error in Chapter 10, page 162, in the sentence beginning the bottom paragraph.

Current text: "Most 401(k) plans let you contribute 100 percent of your salary to your 401(k), up to the plan limit, ..."

My objection: Social Security and Medicare payroll deductions are always taken out of your paycheck first. Only what remains is eligible for contribution to a 401(k), 403(b) or 457 plan. So strictly speaking you can never contribute 100% of your salary.

Porposed text: "After deducting Social Security and Medicare contributions, most 401(k) plans let you contribute 100 percent of your remaining salary to your 401(k), up to the plan limit, ..."

Art

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Post by tfb » Sat Nov 20, 2010 4:33 pm

ThePrune wrote:I believe there is a minor technical error in Chapter 10, page 162, in the sentence beginning the bottom paragraph.

Current text: "Most 401(k) plans let you contribute 100 percent of your salary to your 401(k), up to the plan limit, ..."

My objection: Social Security and Medicare payroll deductions are always taken out of your paycheck first. Only what remains is eligible for contribution to a 401(k), 403(b) or 457 plan. So strictly speaking you can never contribute 100% of your salary.

Porposed text: "After deducting Social Security and Medicare contributions, most 401(k) plans let you contribute 100 percent of your remaining salary to your 401(k), up to the plan limit, ..."

Art
Technically you can pay FICA taxes out of pocket and have 100% of your pay go to your 401k. Whether your employer allows it is a different matter.
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Post by ThePrune » Sat Nov 20, 2010 9:57 pm

Some potential wording changes for Chapter 11: Understanding Social Security. [By the way, this is the very best short summary of SS that I have ever encountered!]

Page 171, the second paragraph in the section "Eligibility for Benefits" begins, "A divorced spouse who was married to a retired worker ...

The worker doesn't have to be "retired" (entitled to benefits) in order for the divorced spouse to apply for benefits at age 62. As explained in the Social Security Handbook, Section 311, bottom note, the divorced spouse can become independently entitled to benefits on the worker's earnings record. The additional restriction that they have been divorced for not less than two continuous years is probably true more often than not.

Possible new sentence: "A divorced spouse who was married to a worker for at least 10 years and is unmarried may start benefits at age 62 or later, in some cases even before the worker has retired."


Page 180, third full paragraph with the sentence beginning: "Benefits to a spouse or a surviving spouse are computed ... "

The initial sentence in this paragraph ends with the phrase ", including any credit for delayed retirement." When I read this entire sentence, the grammar suggests to me that these delayed credits apply both to the spouse's benefits as well as to the suviving spouse's benefits. That may not be what the author intended, but it reads that way to me.

Anyway, a spousal Social Security benefit is not increased by a worker's delayed retirement credits. This is laid out in POMS Section RS00615.695 - Family Maximum Benefits (DRC). It is also stated as a note in the Spousal Benefits section of the Social Security Online Retirment Planner.

Possible new sentence: "Benefits to a spouse or surviving spouse are computed from the basic benefit earned by the worker married to that spouse. If the worker has delayed retirement credits, they would increase the surviving spousal benefit, but have no effect of the spousal benefit."

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Retirement spending

Post by jidina80 » Sat Nov 26, 2011 5:55 pm

In the next edition of the book, I think it would be valuable to elaborate on how one's withdrawal percent of assets can increase as one ages. If our planning horizon is to age 95, when we reach 75 or so we have the ability to spend more.

Also, some rules of thumb on 'if and when' one is advised to buy a single-premium immediate annuity, and what percentage of assets are appropriate for SPIA.

Thanks, Just

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Re: Guide to Retirement Planning - Post Feedback Here

Post by tnvu » Thu Dec 06, 2012 4:45 am

Ch1, p8 -- "tax-tree Roth IRA" should read "tax-free Roth IRA"?

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Re: Guide to Retirement Planning - Post Feedback Here

Post by LadyGeek » Thu Dec 06, 2012 4:39 pm

Thanks, I updated the wiki: Bogleheads' Guide to Retirement Planning
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Re: Guide to Retirement Planning - Post Feedback Here

Post by FiveK » Tue Jun 04, 2019 4:38 pm

Don't know if a new version will be written, but if so the "marginal vs. effective" language in Chapter 10 needs a significant rewrite.

As discussed and explained often (e.g., see this post in Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles - Page 7 - Bogleheads.org), one should look at the expected marginal rate on withdrawals due to a specific contribution when making the choice for that contribution.

Telling people to compare a marginal tax saving rate vs. an expected overall effective rate (as done on p. 155) is not correct when it comes to making choices while working.

The discussion starting on p. 158 under "Potential Disadvantages of Deferring Income" does touch on the "marginal vs. marginal" comparison. It would be good for the whole chapter to convey a consistent message.

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Re: Guide to Retirement Planning - Post Feedback Here

Post by FiveK » Sun Jun 09, 2019 11:07 pm

FiveK wrote:
Tue Jun 04, 2019 4:38 pm
Don't know if a new version will be written, but if so the "marginal vs. effective" language in Chapter 10 needs a significant rewrite.
Chapter 6, p. 84, also says "...a Roth 401(k) is taxed at your (high) marginal rate today , whereas a traditional 401(k) will be taxed at your (lower) average rate when you retire."

That's unfortunate.

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