Death, Taxes and Retirement :-)

A Brief History of the US Tax System

First, we are being told there will be substantial changes in taxes and our tax system. The US tax system has gone through many changes since its inception. Here's a quick overview:

• Early Days: Before the 20th century, the government primarily relied on tariffs and excise taxes.

• 16th Amendment (1913): This amendment allowed the federal government to levy a tax on income, paving the way for the modern income tax system.

• World Wars: Wartime needs led to increased tax rates and the expansion of the tax base.

• Social Security Act (1935): This established Social Security taxes, which are dedicated to funding social security and Medicare programs.

• Ongoing Evolution: The tax code has been continually refined over the years, with changes in rates, deductions, and credits reflecting economic conditions and social priorities but with no major changes.

Key Features of the US Tax System:

• Progressive Taxation: Higher earners pay a larger percentage of their income in taxes.

• Tax Brackets: Income is divided into levels, each taxed at a different rate.

• Deductions and Credits: These reduce taxable income or tax liability, often used to incentivize certain behaviors or provide relief for specific groups.

How do consumer spend their tax returns?

• Essentially it is right in the name: The IRS - THEIRS :-) We’ll see if tax changes impact real estate lending in 2025!

a BORROW SMART CONCEPT
The Right Now 5 Minute Retirement Checkup

Quick hack for retirement savings target: The 25x Rule

The 25x rule helps you estimate how much you need to save for retirement.

Take your yearly expenses and multiply them by 25 to find the amount of money you need to reach financial independence. You’ll back out social security or other fixed income you know that will come to you outside your ‘retirement savings bucket.’

If you don’t know how much you will likely receive in social security, go here first!
PRO TIP! make sure you have the two factor security turned out and if you have not created an account do so now, you’ll get an annual statement of expected retirement benefits that help with future planning.

Example: Let’s say you’d like $100,000 annually and you imagine $40,000 will come from you and your spouses social security. That would leave $60,000 a year spent from your retirement savings. You’ll need $1.5M ($60,000 x 25 = $1,500,000) in savings to cover that $60,000 annual spending. This is another way of getting to the 4% withdrawal rate that is often used. If you have $1,500,000 X 4% withdrawal rate annually = $60,000. That makes it very unlikely you would outlive your savings, and you’ll have a nice cushion when you need more for medical or other expenses.

Another hack from Fidelity… if you have 1X your salary saved by age 30, you are on track. Say at age 30 you make $70,000 a year, your goal should be to have $70,000 in total savings by then. At age 50 you are making $100,000 a year, by age 50 you should have 6 X $100,000 or $600,000 saved. This allows you to do a quick check-in with the example above so you aren’t rushing last minute buying lottery tickets.

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