how to think @ ss, income tax creep, taxable interest etc?

[flipperxxx]

    if i get $35K in social security and nothing else, i pay zero in federal tax. okay, now, all else being equal -- scenario-a:  if i add $37k in taxable interest, the aarp calculator says i'll owe around $5k, or 8.43% of my total taxable income, putting me in the 12% tax bracket.  scenario-b: if my taxable interest jumps to $50k (or 5% interest on $1 mil), my tax bill is then $9.4k and i'm now in the 22% tax bracket.

   my question is this, and i apologize if this is a totally stupid and/or nonsensical question: should i be taking great pains to keep my taxable interest in the 12% bracket or what?  even as i write that, i can glimpse how ludicrous a question it is.  scenario-b pays $4400 more to the IRS than scenario-a ($9.4k - $5k) but my scenario-b account is also fatter by ... well, let's see.  scenario-a: $37k - $5k = $32k.  scenario-b: $50k - $9.4k = $40.6k.  balance increase: $40.6k - $32k = $8.6k.  and more is always better than less, if it's money you're keeping.

   then why is it that my brain is constantly telling me to keep taxable interest as low as possible, just to keep the tax bill small, no matter the total account size is smaller, too?  hmmm.  so glad i wrote this down, since i think maybe it'll allow me to see around the horse blinders i seem to so often borrow from my nag nell.

  yes, i know i should have my taxable money in non-interest bearing instruments, growth ETFs, growth stocks and the like, or at the very least in muni bonds, but munis have never really worked out for me and my money dedicated to stocks is largely tied to a chunk of PRWCX i own in an IRA.  thus, my taxable money has more recently found its way into various short duration OEFs (RSIVX, CBLDX, etc) and two CLOs (JAAA and CLOZ), with a good bit still in money markets, and the tax bill this coming year is likely going to be terrible, and yet and yet that's the price one pays, right?

   and then, with me turning 70 in a few months, i've got RMDs to look forward to in a couple of years.  never got around to doing roth conversions, so my taxes in the future are really really going to be bad.  okay, i've thought about this long enough for today.  now, where's my nag nell and those horse blinders?

  

[steelpony10]

flipperxxx ,

     You should strive considering your needs and risk limits to have taxable income as high as you can generate using a tax smart arrangement, not avoidance of taxes at the price of the greater loss of net income. Would you ever refuse a raise from 50k to 100k when you worked based on paying more taxes?

      Don’t overthink a simple process. You’re just creating a retirement paycheck partially funded by the poor saps (with a small part by you) still working.

       Maybe you’d be better off hiring a financial manager that does your investing for you and pays you a monthly allowance.

[retiredat48]

In taxable, own some stock funds paying "qualifying dividends" (at 3-4% yield) and these, as well as cap gains, are not taxed (o% rate) up to a threshold dollar limit. And caution reaching income limits where your SS gets taxed as well. You should be staying below or just touching it.

R48

[archer]

I've pondered muchly the OP's delema, viewing taxes as a cost of accessing spending money. Long term cap gains are definitely a help. The only control I have over my taxes is how much I spend, so I am more reluctant to put myself in a higher tax bracket. At some limit in withdrawing money, spending $1.00 costs more than it would in a lower tax bracket, making the item I want to purchase not worth the extra money.

Another area affected is loans vs paying up front. Before retirement, I never took loans for major purchases. I find now that a large expenditure like buying a car can cost less in the long run, due to taxes, by securing a loan, depending on interest rates of course. What I mean by "long run" is that according to my spreadsheets, projected PF balance fares better by making payments.

[liftlock]

The income thresholds for taxing Social Security benefits have been in effect since 1984.  Each year more taxpayers have their Social Security benefits taxed because the thresholds are not indexed for inflation.  This is has been described as a "tax cliff" or "tax torpedo" because of the higher tax rates one pays when exceeding the SS income thresholds by only $1. 

www.gobankingrates.com/retirement/social-security/social-security-tax-cliff-one-dollar-greatly-increase-taxable-income/

Most retirees eventually recognize that consuming their retirement savings is going to require the payment of taxes.  Retirees may want to consider the most tax efficient ways to consume their retirement savings.  Retirees are likely to have better financial outcomes by maximizing after- tax income for a desired level of consumption rather than focusing on the taxes paid.  Smoothing income based on the taxpayers available assets and income sources over the taxpayer's remaining live expectancy is one technique for maximizing after-tax income.  The idea is to smooth income over one's life expectancy to avoid or delay spikes in marginal tax rates.   

 

[flipperxxx]

r48: i may be wrong but i think SS doesn't get taxed under $34k total income but $1 over that and you hit the "tax cliff" that liftlock refers to; thus, it seems well nigh impossible to stay below the limit. maybe the trick is to try to stay under the 12% top bracket and avoid the 22% bracket.

in my situation, i am able to live mostly on SS and don't draw on investment income except to use for taxes. But, of course, i live with the fear that one day, out of the blue, my SS won't cover my needs, so i've invested accordingly and pay taxes accordingly. ah, give me the days when money markets only paid 1% and I didn't have to think about cliffs and torpedoes. ha, ha, just kidding, mainly.

[catdog]

We bought a tesla last year. We also earned $48,000 in our money market fund. Hoping the $7500 federal tax incentive will soften the blow. We are also considering getting a solar array for tax incentives. New Hampshire has high power rates.

Catdog

[fritzo489]

Quoting my father , I don't mind paying taxes as long as I have the money to pay them !