Income taxes pushing me towards retirement

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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adrian2
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Re: Income taxes pushing me towards retirement

Post by adrian2 »

miguel wrote: 02 Sep 2017 09:20 https://en.wikipedia.org/wiki/History_o ... st_century

Now just think of those punitive tax rates the Brits had to endure a few generations ago :D
The highest rate of income tax peaked in the Second World War at 99.25%. It was then slightly reduced and was around 90% through the 1950s and 60s.
:roll:
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Re: Income taxes pushing me towards retirement

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adrian2 wrote: 02 Sep 2017 10:19
miguel wrote: 02 Sep 2017 09:20 https://en.wikipedia.org/wiki/History_o ... st_century

Now just think of those punitive tax rates the Brits had to endure a few generations ago :D
The highest rate of income tax peaked in the Second World War at 99.25%. It was then slightly reduced and was around 90% through the 1950s and 60s.
:roll:
I remember those days. One of my summer jobs was cleaning boilers in a paper factory. Good money, but the company couldn't get any of the workers to work overtime because the wages were taxed at 90%. And of course it pushed all the unions to strike for even higher wages. Crazy.
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Re: Income taxes pushing me towards retirement

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tandemkayak wrote: 30 Aug 2017 12:38 Although I don't feel particularly ready to retire, the weight of income taxes in my budget makes me wonder whether I should consider doing so. I wonder if others have felt the same way in the past and how they have reacted to it.
I came to the exact same conclusion as you did early 2017. I happen to have a decent non-registered nest egg, on top of maxed out TFSA and RRSP. The non-reg portfolio started attracting a lot of taxes, which put me year after year in increasingly uncomfortable tax brackets, once topped up with my salary. Also, this coincided with the Liberals cutting TFSA room, UCCB and income splitting for families and the general eat-the-rich sentiment in recent politics. Moreover, my alimony payments are based on a sizable taxable income, regardless of rather my frugal lifestyle. All these factors combined made me go for it and quit my job in the spring and enjoy early financial independence. The stress of the work environment and the opportunity cost of time lost just isn't worth the extra after-tax disposable income for me anymore.

So far I've mostly invested my newly-found free time with my family and it has been very rewarding in ways that more money just can't buy. If I happen to become bored of the stay-at-home dad experience, I can always find some other low-stress part-time employment or hobby. Enjoying it so far!
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Re: Income taxes pushing me towards retirement

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EmperorCoder wrote: 02 Sep 2017 14:30
I came to the exact same conclusion as you did early 2017. I happen to have a decent non-registered nest egg, on top of maxed out TFSA and RRSP. The non-reg portfolio started attracting a lot of taxes, which put me year after year in increasingly uncomfortable tax brackets, once topped up with my salary. Also, this coincided with the Liberals cutting TFSA room, UCCB and income splitting for families and the general eat-the-rich sentiment in recent politics. Moreover, my alimony payments are based on a sizable taxable income, regardless of rather my frugal lifestyle. All these factors combined made me go for it and quit my job in the spring and enjoy early financial independence. The stress of the work environment and the opportunity cost of time lost just isn't worth the extra after-tax disposable income for me anymore.

So far I've mostly invested my newly-found free time with my family and it has been very rewarding in ways that more money just can't buy. If I happen to become bored of the stay-at-home dad experience, I can always find some other low-stress part-time employment or hobby. Enjoying it so far!
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Re: Income taxes pushing me towards retirement

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EmperorCoder wrote: 02 Sep 2017 14:30 The stress of the work environment and the opportunity cost of time lost just isn't worth the extra after-tax disposable income for me anymore.
Precisely and that agrees with the observations of the OP and many of us in the silent majority (but not most of the commenters here on this forum).
I drastically reduced my hours and workload back in 2015 and depending on what happens in October with the CCPC rules I am giving serious thought to closing up shop entirely.

At some point high levels of taxation become a disincentive to strive, to work hard and to succeed. Especially when they are coupled to class warfare like proclamations that entrepreneurs aren't paying their "Fair Share" and the insinuation that we are all tax cheats. Little thought is given to what that means to the country in the long term as long as more tax dollars are brought in right NOW to pay for whatever it is that was promised to others.

Frankly, I think it is also a manifestation of the "tall poppy" syndrome that I thought Canadian culture was growing out of. Guess not.
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Re: Income taxes pushing me towards retirement

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FWIW, I retired at 57 because I could financially. The extra money to be earned to age 60 or later was not worth it. Best decision I ever made....but it was not directly because of specific taxation percentages that caused me to throw in the towel.... albeit it is true that it was my take home money that I was looking at when I threw in the towel. Would I have stayed longer if my tax rate was 25% or 40%? Can't say that it would have made a difference.

P.S. I have never been obsessed with the income taxes I have paid. It is the price of success. Not a bad tradeoff.
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Re: Income taxes pushing me towards retirement

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AltaRed wrote: 03 Sep 2017 12:28 P.S. I have never been obsessed with the income taxes I have paid. It is the price of success. Not a bad tradeoff.
Precisely the attitude I was referring to. No wonder politicians at every level of government feel free to increase taxes and fees when that is the reaction of the electorate.
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Re: Income taxes pushing me towards retirement

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zeno wrote: 31 Aug 2017 17:16 Sounds like what you're talking about is not retirement, but financial independence. You have reached or are about to reach the point where you can live off your investments. That's a very good thing.
I would set the tax thoughts aside and decide what you want to do with your life now you have that very enviable choice. Many possibilities have been suggested, sabbatical/leave of absence, shorter work week, change of career, charity work, charitable giving. What is going to give your life meaning and leave you fulfilled? Did you ever want to write a book, learn a musical instrument, a second or third language, travel the world?
I concur wholeheartedly with this. Been there and done that. Financial independence is powerful as it puts the power into your own hands to decide the next steps. They aren't necessarily easy to figure out and are different for everyone based on their circumstances.

Good luck to the OP as they ponder those next steps. Lots of good information and advice for other FWF'ers on how they've handled the situation. :thumbsup: :thumbsup:
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Re: Income taxes pushing me towards retirement

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Koogie wrote: 03 Sep 2017 12:57
AltaRed wrote: 03 Sep 2017 12:28 P.S. I have never been obsessed with the income taxes I have paid. It is the price of success. Not a bad tradeoff.
Precisely the attitude I was referring to. No wonder politicians at every level of government feel free to increase taxes and fees when that is the reaction of the electorate.
Actually I believe a lot of the electorate does obsess with taxes. I hear it regularly from those around me. I am fine with those people being the 'check and balance'. It can mean a lot for those in the low/mid-middle class especially. I am more obsessed with boutique tax credits and special interest exemptions. Our society has been built on a progressive tax system for a long time. It is not going away.... so let's focus instead on closing of loopholes/boutique tax credits. That should help keep MTR brackets lower than they might otherwise be/go.
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Re: Income taxes pushing me towards retirement

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AltaRed wrote: 03 Sep 2017 13:18 I am fine with those people being the 'check and balance'. It can mean a lot for those in the low/mid-middle class especially.
lol.. I guess I should know my place.
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Re: Income taxes pushing me towards retirement

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Koogie wrote: 03 Sep 2017 13:28
AltaRed wrote: 03 Sep 2017 13:18 I am fine with those people being the 'check and balance'. It can mean a lot for those in the low/mid-middle class especially.
lol.. I guess I should know my place.
Wasn't meant as a putdown. Simply that taxes are a more important component of one's financial being at middle class income levels. Those earning in excess of some threshold, e.g. $100-150k or so, should be able to have a comfortable lifestyle without obsessing about a few percentage points in tax rates. They should consider themselves lucky to live in a society as well off as we are whilst disrproportionately contributing their good fortune in a progressive tax system.
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Re: Income taxes pushing me towards retirement

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AltaRed wrote: 03 Sep 2017 13:18 I am more obsessed with boutique tax credits and special interest exemptions. Our society has been built on a progressive tax system for a long time. It is not going away.... so let's focus instead on closing of loopholes/boutique tax credits. That should help keep MTR brackets lower than they might otherwise be/go.
I strongly agree.

I would end all tax expenditures ... loopholes in common parlance ... and lower the MTRs. That will encourage people to take on activities that make sense on their own merit, rather than because those activities lead to tax breaks. There is also the problem that many tax breaks are the result of lobbying by special interest groups, and sometimes look like quid pro quos -- the special interest group gets a tax break and the politician gets something nice at some later date. Finally I prefer outright subsidies to tax breaks if the government wants something done, The subsidy is more visible and requires a vote for its renewal from time to time. By contrast tax breaks become "normal" and cannot be ended except at huge political cost.

As to high taxes, I would hope that ending a tax loophole would be accompanied by a lowering of the general tax rate.

Anyhow, I don't care that much about how much government taxes. I care much more about how much government spends -- and on what. Whether that spending is financed by taxes or by borrowing, we are still the ones on the hook eventually.

As far as I'm concerned personally, I live in an after-tax world, for the most part. The money I need to pay for various things is all in after-tax dollars. So I always mentally translate any income into after-tax dollars to match. So I always look at the earnings from a particular job or contract in after-tax terms. To the extent I track my portfolio, I always make sure to track its after-tax worth (assuming it was liquidated today) as well as in the mix of pre- and after-tax dollars my broker shows me.

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Re: Income taxes pushing me towards retirement

Post by miguel »

problem is greed

those making a lot of dough want to keep more and more of it

nasty human nature but mostly inevitable

in my own life time i have come across a few rich people and they mostly resented paying big taxes even though they have (had) an enviable lifestyle

(me, i know poverty first hand but that was 50 plus years ago thank god)
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Re: Income taxes pushing me towards retirement

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FIFY
miguel wrote: 03 Sep 2017 13:53 problem is greed

those who choose not to work a lot or very hard or who make bad choices want to get more and more of other peoples money

nasty human nature but mostly inevitable

in my own life time i have come across a lot of people who think "the government" should take care of them so that they can have the same lifestyle as everyone else
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Re: Income taxes pushing me towards retirement

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ghariton wrote: 03 Sep 2017 13:52 As to high taxes, I would hope that ending a tax loophole would be accompanied by a lowering of the general tax rate.
At this point in time, I would say that is a fantasy. Governments at all levels, of almost any political stripe, are addicted to ever increasing levels of taxation to pay for the spending they have promised. You might call it quid pro quo. The cynical would call it legalized corruption.
ghariton wrote: 03 Sep 2017 13:52 Anyhow, I don't care that much about how much government taxes. I care much more about how much government spends -- and on what. Whether that spending is financed by taxes or by borrowing, we are still the ones on the hook eventually.
You should care about both ends of the equation. So should anyone who pays a $1 in tax. To imagine one will improve while the other remains static is just that, imaginary.
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Re: Income taxes pushing me towards retirement

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miguel wrote: 03 Sep 2017 13:53 problem is greed

those making a lot of dough want to keep more and more of it

nasty human nature but mostly inevitable

in my own life time i have come across a few rich people and they mostly resented paying big taxes even though they have (had) an enviable lifestyle

(me, i know poverty first hand but that was 50 plus years ago thank god)
Indeed some, maybe most, do. Many don't. Those that do also likely carry outsized egos on status measured by financial status. A poor way to live in my opinion. Rich people put their pants on one leg at a time like everyone else, and suffer health/medical setbacks too. At some level, money does not buy happiness. Hopefully the closing of more loopholes could squeeze more out of this class. Regardless, I am derailing this thread. Nuff said.
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Re: Income taxes pushing me towards retirement

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Well, let me try to get back on track.

Taxes are a wedge between what my client (or employer) pays me and what I get to keep. If my customer finds my services valuable enough, he or she will absorb some or all of that wedge, in the form of higher prices. If not, then I get to absorb the wedge, or instead choose not to do the work. If the latter, then certain work, presumably lower-value work, won't get done, and society as a whole will do without.

In concrete terms, that will lead to more do-it-yourself and the disappearance of lower-value work. Think of the cashiers at your local grocery store or the "greeters" at Walmart. Shovel your own driveway and cut your own grass. We will have more early retirees and more unemployed of all ages. That is, unless these workers can find alternative employment where they would add more value, enough to overcome the tax wedge that has just been increased.

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Re: Income taxes pushing me towards retirement

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I'm sure those are sound academic theories. Of course, people have to actually live through these forced transitions. "Low value" jobs may disappear but those people don't conveniently do the same nor can they all be retrained into being "useful".

Do academic theories explain at what level of taxation we move past low skill job losses and onto people who "matter" economically ? Because if we extrapolate upwards to higher and higher levels of taxation, it implies that if we can be taxed out of our jobs, they mustn't matter. Semi-skilled are next, perhaps ? Or tradesmen ? How about farmers. Tax those evil farmers who don't pay their "fair share" and perhaps we can all eat soylent green.

Finally, is it economically sound to force the good engineers, CEOs and lawyers of the world to spend their productive time shoveling their own driveways, cutting their own grass and baking their own bread ?
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Re: Income taxes pushing me towards retirement

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Koogie wrote: 03 Sep 2017 16:19 I'm sure those are sound academic theories. Of course, people have to actually live through these forced transitions. "Low value" jobs may disappear but those people don't conveniently do the same nor can they all be retrained into being "useful".
We've been here before, of course. I remember when we had large numbers of textile workers in Canada. My wife comes from the Eastern Townships, and textile mills were a mainstay of life there, along with agriculture. Now the textile mills are gone, and the family farms have been consolidated into agribusinesses employing a small fraction of what they used to employ (oh, and lots of low-paid temporary foreign workers).

The young people moved and retrained. The old people took early retirement. It wasn't easy for either group. But the changes were necessary. Taxation had a role, but it was a relatively minor one.
Do academic theories explain at what level of taxation we move past low skill job losses and onto people who "matter" economically ? Because if we extrapolate upwards to higher and higher levels of taxation, it implies that if we can be taxed out of our jobs, they mustn't matter.
To economists, everyone "matters". But again, we are facing much stronger forces than taxation when it comes to the creation and destruction of jobs. Right now, the big threat is automation. Smaller but still significant threats are an inadequate education system, minimum wage laws and other (misguided) attempts at social justice, unproductive government spending that sucks resources out of productive uses in our economy, and counterproductive and anticompetitive regulation. Once we have made progress on those, I'll get right on to the case for lighter taxation.
How about farmers.
Dairy and poultry farmers are high on my public enemies list. They have corrupted governments and harmed us all.
Finally, is it economically sound to force the good engineers, CEOs and lawyers of the world to spend their productive time shoveling their own driveways, cutting their own grass and baking their own bread ?
A good point. But I suspect that high minimum wages are an even bigger contributor than high tax rates.

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Re: Income taxes pushing me towards retirement

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ghariton wrote: 03 Sep 2017 17:43 We've been here before, of course. I remember when we had large numbers of textile workers in Canada. My wife comes from the Eastern Townships, and textile mills were a mainstay of life there, along with agriculture. Now the textile mills are gone, and the family farms have been consolidated into agribusinesses employing a small fraction of what they used to employ (oh, and lots of low-paid temporary foreign workers).
The young people moved and retrained. The old people took early retirement. It wasn't easy for either group. But the changes were necessary. Taxation had a role, but it was a relatively minor one.
Agreed that in the above case job losses were primarily caused by market forces but that isn't what we are discussing. Some would say that those market forces are natural. What is unnatural is a nations own government working against its own economy by way of overtaxation. However, I feel that is what we are creeping back towards, IMHO. Do we not have enough trouble without our own government adding to our woes ?
ghariton wrote: 03 Sep 2017 17:43
....unproductive government spending that sucks resources out of productive uses in our economy, and counterproductive and anticompetitive regulation. Once we have made progress on those, I'll get right on to the case for lighter taxation.
Overtaxation and unproductive spending seem like two ends of one rope. You feel spending is a higher priority. I believe if they had less coming in to waste then less would be wasted. Perhaps I am the fantasist in this case. I certainly feel like private industry and private individuals could put it to better use if it was left in their pockets instead of redistributed in a Soviet-lite fashion. Perhaps then people like the OP, myself and other posters wouldn't be so disheartened and ready to pack it in at young ages.
ghariton wrote: 03 Sep 2017 17:43 Dairy and poultry farmers are high on my public enemies list. They have corrupted governments and harmed us all.
Again, I feel you have the wrong end of the goose there. As the kids say: Don't hate the players, hate the game.

In the end I just feel we are going the wrong way in regard to taxation and there is far, far, far to much complacency about it. Successive governments have done an amazing job of separating Canadians into little entitlement tribes. As long as I get MY government cheque, who cares what happens to others when in fact we should be saying lets keep as much money in the hands of the people as we can.

Big Brother types will disagree with that of course because they like centralized planning, paternalism and the corruption endemic in bureaucracy.

But, then I admit to being a flat tax fantasist who doesn't believe in "regressive" tax bracketing. I say a 30K personal exemption for all (poor working people pay no tax) and a flat 10% tax above that. No games, no gimmicks, no gimmedats. Maybe I should write science fiction.
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Re: Income taxes pushing me towards retirement

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Koogie wrote: 03 Sep 2017 18:36I say a 30K personal exemption for all (poor working people pay no tax) and a flat 10% tax above that. No games, no gimmicks, no gimmedats. Maybe I should write science fiction.
I'd vote for something like that but it is pure fantasy. Changes in personal examptions have the most impact on tax revenues. Getting from where we are today to $30k would be fantasy........ unless all boutique tax breaks were taken away too, including the 50% cap gains inclusion rate. After all, if you want ultimate fairness, everything* must be on an 'equivalent' basis. Let's put on an inheritance flat tax too above certain thresholds. How taxing lottery winnings aka USA?

* I'd still keep the Cdn DTC though since dividends are paid out of corporate 'after tax' dollars, i.e. to avoid double taxation.
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Re: Income taxes pushing me towards retirement

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And let's not forget to catch exorbitant capital gains on PRs, say anything more than 50% above the median value of a residence in a neighborhood.
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Re: Income taxes pushing me towards retirement

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AltaRed wrote: 03 Sep 2017 19:06
Koogie wrote: 03 Sep 2017 18:36I say a 30K personal exemption for all (poor working people pay no tax) and a flat 10% tax above that. No games, no gimmicks, no gimmedats. Maybe I should write science fiction.
I'd vote for something like that but it is pure fantasy. Changes in personal examptions have the most impact on tax revenues. Getting from where we are today to $30k would be fantasy........ unless all boutique tax breaks were taken away too, including the 50% cap gains inclusion rate. After all, if you want ultimate fairness, everything* must be on an 'equivalent' basis. Let's put on an inheritance flat tax too above certain thresholds. How taxing lottery winnings aka USA?

* I'd still keep the Cdn DTC though since dividends are paid out of corporate 'after tax' dollars, i.e. to avoid double taxation.
It is a fantasy but I felt a bit ranty so went for it. :wink: I will note some countries are more generous in their personal exemptions though. Like the UK at £11500 p/p or France at €9700 p/p They of course use the same foolish tax bracket system as us though.

I've never agreed with inheritance taxes, even though I have nothing to lose or gain by them personally. I have no trouble with taxing lottery winnings and don't understand why we don't. Aren't they the very definition of unearned income ?
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Re: Income taxes pushing me towards retirement

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Koogie wrote: 04 Sep 2017 10:00 I have no trouble with taxing lottery winnings and don't understand why we don't. Aren't they the very definition of unearned income ?
IIRC, the argument against taxing lottery winnings is that the tickets are purchased with after tax dollars. Course that argument falls apart when the government taxes investment income, presumably purchased with after tax dollars too.
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Re: Income taxes pushing me towards retirement

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AltaRed wrote: 04 Sep 2017 10:40
Koogie wrote: 04 Sep 2017 10:00 I have no trouble with taxing lottery winnings and don't understand why we don't. Aren't they the very definition of unearned income ?
IIRC, the argument against taxing lottery winnings is that the tickets are purchased with after tax dollars. Course that argument falls apart when the government taxes investment income, presumably purchased with after tax dollars too.
Yabut if you follow up your "fall apart" reasoning, the government taxes (non-registered) investment income, purchased with after tax dollars. Right, but it allows a capital loss when your securities go to zero; to be consistent, it should allow a capital loss if your lottery ticket goes to zero, too.
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