Saturday, January 4, 2014

Tax Season.....What/If



Retirement?  Early retirement when not old enough for Social Security?  An elusive dream or creative entrapment?  As tax season approaches it might be time to look closer at just how much a person really makes a year.

Finding some spare time on my hands I have done my preliminary 2013 taxes already.  That got me to thinking and looking at the last pay stub I just received.  Since I only worked 5 months in 2013 I was a bit surprised by what I found.

Looking at the total earnings it isn’t bad for less than half a year.  But, then looking at the withholding/deductions section was like WTF!  Subtracting all the Arizona State Tax, ASRS Retirement, Federal Tax W/H, FICA Medicare, FICA Social Security and that total earnings took a nose dive.  So, subtracting all of the withholding/deductions from the gross, taking that number and dividing by the gross I find I am in a 42% withholding bracket for 2013 and that is just based on 5 months.  The true value of my income wasn’t what I made, it is 42% less than what I thought I was making.  42% that I don’t have to pay being retired!

Being interested in how that works for me, I found the new 2014 tax guide.  I did the projections for next year with my numbers and found I will only pay 8% tax on my total income.  No ASRS Retirement, no FICA Medicare, no FICA Medicare, and only a one time estimated 2014 tax payment if I’m not off on my calculations.  I could be off, but I estimated this year’s tax bill last February and am only $75 off.  Wasn’t expecting or counting that bonus check.

Next I compared 2013 spendable income to projected 2014 spendable income and found a reduction of only 9%.  I didn’t believe that number and went back several times and it always comes out the same. Because I had already cut the cable cord (small sacrifice to retire early and not planning to be home as much anyway) and restructured my cell phone plan without a smartphone I made up that 9%.  The reality, for me, is by looking closely at what I could live without and still live comfortably I am retired on even money.   Just to be safe going forward I am now budgeting more closely for this year to prevent any surprises.

Play the What/If game while doing your taxes and see what you find.  Maybe working those last couple or so years really isn’t as profitable as it would appear.

6 comments :

  1. Hmmm, thank you for the suggestion. I'm going to give that a serious look...

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  2. I've often marveled at how much gets taken off the paychecks. And that is without paying into a private or work related retirement plan unless you count Social security.

    I am glad retirement is working out for you.

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  3. Paul:

    Oh how I wished I could retire. Right now it's just a dream and I am already collecting my Government pension

    bob
    Riding the Wet Coast

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  4. Richard; Good luck! I hope your numbers are as favorable as mine.

    Trobairitz; I knew it was a crazy amount, but seeing it in real life is eye opening.

    Bob Scoot; You just gotta do it!! You can't take the money with you when you're gone and can't get yesterday or last hour back again!!

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  5. What about medical? I hope something affordable comes along before I turn 65. I would like to retire at 62. Can't happen without some kind of medical. I haven't really looked into Obama Care since I have medical at work but from what I hear it is not so affordable. If they keep raising the age to collect Medicare I'll be on the work till I die program.

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  6. bikerbaby; I am very fortunate with healthcare because my school district still furnishes it until age 65 if I substitute 25 days a year. I would look into Obummer Care before age 62 and use expected retirement income to see what it cost.

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