Two GIANT Expenses You Won’t Have in Retirement

[00:00:00]two major expenses that are going to go down once you retire. I can almost almost guarantee it. Almost. All right.

[00:00:08]So, it's a when I talk to clients, I it's they are amazed when we're running cash flow analysis in retirement cuz I'm showing them cash coming in, cash going out, taxes paid, and they're like, "That's it for taxes?" I'm like, "Yep."

[00:00:24]And that's why for a lot of my clients, Roth conversions typically don't make sense. Not all of them. There are some that do, but a lot of them that don't.

[00:00:31]And the reason is because the taxes are just too low. Now, we have widows tax to content with. And again, if the widow's tax, if you're in a 10% tax bracket, now marginal tax bracket, effective tax, we'll just say eight. And your spouse surviving spouse is going to be a 22% marginal tax bracket with an effective tax rate of 18%. Yeah, we should want to level that off unequivocally. Roth conversions, taking money out, giving it to kids, whatever. All right, but at the end of the day, that's not all that prevalent. It's just not. And so the tax rates, the actual tax you pay goes way down. Especially like I live in the state of Georgia. All right. Memory serves as a 5% income tax. Yeah, I think it's about 5% income tax for earned income. Once you hit 62 in the state of Georgia, I think you get the first 30 $30,000 tax-free from me. Charlotte get the first $30,000 for her tax free. So we'll get the first 60,000. Don't quote me on that taxree once we're 62, which is only basically six years away for your old buddy Josh. Uh once you hit 65, your first 60 thou $65,000 per person is taxfree in the state of Georgia. All right. So instead of paying on 100,000 bucks, 5,000 in taxes on 100,000 bucks, you pay nothing. You pay no social security tax. So 6.2 is gone. Medicare is gone. So 7.65 and I'm self-employed so I pay both sides just gone. So I save immediately 5% all right to the state. I save uh whatever 7.65 is 15.2 15 whatever it is 15% to FICA. All right.

[00:02:12]So I'm right there. I'm 20% shy of what I was paying while I was working. Part two is you still get a big standard deduction uh for your income as well.

[00:02:22]So, not only do you not have to pay state tax, not only do you a little bit of state tax potentially, but not much.

[00:02:27]Not only do you not have to pay FICA tax, you get a bigger standard deduction. You know, under current tax law, it's $6,000. Still 6,000 bucks is 6,000 bucks. So, the only thing you're dealing with is your federal income tax.

[00:02:40]Social Security, the the max you'll have to pay tax on is 85%. And so for me, um, because social security is going to be the the biggest form of my income, I'm not going to have to pay any tax on social security by and large. I unless I still work, but because I don't I have no basically hardly any taxes. So just think about if you're 100,000 bucks, all right, as income, of which we'll just say 60,000 comes from social security, 40,000 comes from IRA distributions. I don't know what it is off the top of my head, but of that 60,000 from social security, a significant portion of it could be taxfree. You're not going to pay any state income tax. I can almost guarantee you that. Almost any state, you're not going to pay. Even New Jersey, you're not going to pay state income tax. So, only tax you're going have to pay is a $40,000 distribution from your IRA and whatever amount Social Security is subject to taxation. We'll just say uh 20,000 subject to taxation.

[00:03:32]So, you have $60,000 of of AGI. Take out what's the standard deduction? 35,000 bucks. You have a $25,000 taxable income.

[00:03:42]25,000 bucks, dude. That on $100,000 taxable income, you're going to pay a couple thousand bucks in taxes. Yeah, unless it's 10% tax bracket. I can't remember. We'll just say, you know, you'll have effective tax rate of not effective tax rate. You'll have 11% effective marginal tax rate, if that makes sense. Marginal tax rate is just the the tax you have to pay on the next dollar of income. Effective tax rate is what you have your total taxes you have to pay on your total income. I'm not sure what it is. We'll just say two to three,000 bucks for simplicity. So, you're going to have effective tax rate of 3% even though you're only in the even though you're in a 12% marginal tax bracket just on 100,000 bucks. And I might even be overestimating that too because I'm not exactly sure how much of a tax torpedo you have to pay with a $40,000 IRA distribution. I just don't know. But but I mean, I'm just telling you, man. So, that's one huge expense that goes away and that's the one that gets people like like that guy Wes, what the hell was his name? Wes something down here in Atlanta. That's what got me fired up to start my YouTube channel. I forgot his name. That was his name. Wes something. I can't remember. But anyway, he's like, "Oh, you have an effective uh tax rate of 25% on $80,000 of income." I said, "What are you talking about?" Not even close. Not even close. Oh, yeah.

[00:04:57]Yeah. All right. So, secondly, it's going to be a mortgage. Most of y'all are going to have no mortgage payment.

[00:05:01]How do I know? Because if we Oh, look at that. Look, you can put this right here.

[00:05:05]Look at this. Oh, man. That's funny. You should try do try to do a squat with that thing like that.

[00:05:11]Watch.

[00:05:12]Oh, that's not coming up. You locked yourself in.

[00:05:16]Oh, that'd be a good trick to my I should do that. My son comes. Why? Get it up, boy. Get it up, boy. Anyway, and the vast majority a significant majority of seniors have no mortgage payment.

[00:05:28]They just don't. They have their home free and clear. I think it's 80% of seniors have their they own their own home of which 60% of those have their home paid off. So you have don't hardly any taxes and no mortgage. Still got property tax. I grant you. You still got home insurance. I grant you what I'm saying. I mean I get all that. But got the one of the I look at my t my my out-of- pocket expenses out of pocket.

[00:05:54]My expenses taxes are consuming a huge amount. mortgage, it consumes a hu huge amount, too. And just a couple years from now, those things are gonna be gone. Gone, dude. Just like Joe Biden's brain, just gone. And it's uh Are you not factoring that in into your financial plan? Something to think about. All right, God bless. Smash.

[00:06:15]We'll see