Income taxes pushing me towards retirement

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
User avatar
deaddog
Veteran Contributor
Veteran Contributor
Posts: 3422
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Re: Income taxes pushing me towards retirement

Post by deaddog »

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.
Lotteries are already a tax on the poor.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Income taxes pushing me towards retirement

Post by AltaRed »

But a voluntary tax none the less. YCFS
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
deaddog
Veteran Contributor
Veteran Contributor
Posts: 3422
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Re: Income taxes pushing me towards retirement

Post by deaddog »

AltaRed wrote: 04 Sep 2017 11:12 YCFS
Had to look it up.
:rofl:
But so true!!!
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
User avatar
Wallace
Veteran Contributor
Veteran Contributor
Posts: 2422
Joined: 30 Nov 2005 19:05
Location: Waterloo Ont
Contact:

Re: Income taxes pushing me towards retirement

Post by Wallace »

I think we're getting into "water-cooler" territory. To get back on track -

I like this comment from the OP:
It is not uncommon for the government to impose heavy taxes on things that it wants to discourage like alcohol and smokes. I believe the heavy taxation on income ends up having a similar effect (at least on me).
Perceptive. On re-reading the thread, I think tandemkayak has thought through the issues pretty well. The only caveat that I have is the degree of frugality necessary to stay within the financial parameters he outlines. And without the benefit of pension, CPP, or other source of income. There's also the issue of health. Prescriptions can be awfully expensive. But we all have different ideas about what we want out of life. A part-time job like some have suggested could be the answer, particularly if it is local and stress-free. A close friend of mine walks the floor at Canadian Tire as a part-time job. He's gregarious, reliable, loves the job, and is an asset to management. It keeps him fit and he has zero stress compared to his previous job with another company at management level. He can quit at any time, but has been doing it for 13 years. It provides extra pocket money so he and wife can go cruises when they want. Of course, you don't need a lot of pocket money to paddle a kayak. :)

Good luck with your decision TK.
"Why do I have to go to school? If I watch YouTube I'll know everything."
- Grandson #2
tandemkayak
Newcomer
Newcomer
Posts: 8
Joined: 30 Aug 2017 12:12

Re: Income taxes pushing me towards retirement

Post by tandemkayak »

Wallace wrote: 04 Sep 2017 11:35 The only caveat that I have is the degree of frugality necessary to stay within the financial parameters he outlines. And without the benefit of pension, CPP, or other source of income. There's also the issue of health. Prescriptions can be awfully expensive.
This is something that concerns me as well. I have been tracking our expenses for the past few years and I know we stay below $24K without putting any effort. We don't really feel like we are missing out on anything. Particularly, when it comes to food, we eat very healthy and we don't really save on groceries. The big caveat though is that we are still very healthy and, as a result, medical expenses are very low. I imagine a lot of the big expenses are going to come up much later in life. It is difficult to prepare for them. I imagine even someone retiring at 60 is likely to have a hard time predicting what kind of expenses may show up 25 years later at 85.

My thinking for now is the following: According to SWR and VPW, my nest egg would be able to sustain a much larger income then what I plan to draw. Hence, the portfolio will tend to keep on growing, which I am treating as a safety buffer. At some point, OAS and CPP (partial, in my case) will kick in as well. The fact that I plan to stay well below the numbers I get from SWR and VPW makes me think the plan is relatively safe. Is SWR and VPW the best way to go about calculating these numbers though?

There is no way to tell what is going to happen in 50 years so it is impossible to come up with a bullet proof plan. However, when I think about people retiring at 60, it would also be very difficult for them to account for all these uncertainties. Unless you have a government job with a DB pension, I think retirement planning will always be tricky.
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Income taxes pushing me towards retirement

Post by AltaRed »

$24k annual spend (including taxes) is pretty close to current poverty level for a couple. I find it hard to believe one can live an enjoyable life for the next 50 years at that rate of spend. Inflation, even at low levels, will likely double that rate of spend in circa 30 years just to stay even. Not for me to debate though as long as you don't become a ward of the state.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
twa2w
Veteran Contributor
Veteran Contributor
Posts: 2054
Joined: 22 Feb 2005 13:08

Re: Income taxes pushing me towards retirement

Post by twa2w »

AltaRed wrote: 06 Sep 2017 09:31 $24k annual spend (including taxes) is pretty close to current poverty level for a couple. I find it hard to believe one can live an enjoyable life for the next 50 years at that rate of spend. Inflation, even at low levels, will likely double that rate of spend in circa 30 years just to stay even. Not for me to debate though as long as you don't become a ward of the state.
True, but 24k and paying rent versus 24k with a paid for residence are two different things. I am not sure where OP lives but 24k in one city can also be a lot different than 24k in another.
If the OP has a cash cushion, beyond what generates income, for replacing vehicle, handling a cash call for condo issues, they should be ok.

I do also wonder about long term retirement at an enjoyable level at that income but everyone is different. The OP may find with that extra free time they may want to travel more or go to more concerts or whatever than while working. Or maybe not. Not everyone travels on tours. People backpack, camp etc well into old age. Some don't like to travel and enjoy hanging at the local library and taking walks. .
Other than travel, my spouse and I could stay under the 24k spending mark. We don't but we could. We will likely only be a few thousand over that for this year.(excluding travel).

The OP is in a position to test drive retirement. They or spouse could always return to workforce, full or part time or casual or temp contracts.
tandemkayak
Newcomer
Newcomer
Posts: 8
Joined: 30 Aug 2017 12:12

Re: Income taxes pushing me towards retirement

Post by tandemkayak »

So in the end I did quit my job. I have been keeping myself busy with outdoor activities and some volunteering. It has been a bit boring at times because all of my friends are still working but it has been a very enjoyable experience.

I had been considering a part-time job as a way to supplement my income (as discussed above) but I ended up being offered a full-time position with the government. Having tried early retirement living exclusively off my portfolio, the value of a fully-indexed DB plan is now very clear to me. I think if I put in another 5 or 6 years, the deferred DB plan + CPP payments will offer me a very solid retirement in the future. So I am putting early retirement on hold for another 5 or 6 years. Income taxes will again be the highest item in my budget but at least now the government is offering me a DB plan so it doesn't feel as bad.
skinnyinvestor
Contributor
Contributor
Posts: 353
Joined: 15 Dec 2017 12:29
Location: Frozen Prairie

Re: Income taxes pushing me towards retirement

Post by skinnyinvestor »

I have been following this thread with interest as I am contemplating similar ina few years.
Kudos to you for trying it out! All the theory in the world (or thread pages on FWF) is not a substitute.
Best to you in the future.
The extra mile is never crowded.
tandemkayak
Newcomer
Newcomer
Posts: 8
Joined: 30 Aug 2017 12:12

Re: Income taxes pushing me towards retirement

Post by tandemkayak »

I am glad to hear the thread has been useful to others. I will try and post updates as the years go by. I may give early retirement another shot in 5 years. Best of luck to you too.
Flaccidsteele
Veteran Contributor
Veteran Contributor
Posts: 4523
Joined: 06 Mar 2014 12:52
Location: Retired Gen Xer somewhere on the planet earth

Re: Income taxes pushing me towards retirement

Post by Flaccidsteele »

tandemkayak wrote: 10 Jun 2018 19:50 I am glad to hear the thread has been useful to others. I will try and post updates as the years go by. I may give early retirement another shot in 5 years. Best of luck to you too.
Personally I found this thread very interesting. Thank you

I've tried to leave work a few times, but have always failed to stay out of the workforce

You alluded to one factor that I also experienced:
tandemkayak wrote: 08 Jun 2018 07:54 It has been a bit boring at times because all of my friends are still working...
Another factor is that I've never had a stressful job. I think knowing that you don't need the job takes a lot of the stress out of work

I wish you the best of luck!
rharvey199
Contributor
Contributor
Posts: 228
Joined: 23 Feb 2017 15:15

Re: Income taxes pushing me towards retirement

Post by rharvey199 »

Flaccidsteele wrote: 11 Jun 2018 19:28 I think knowing that you don't need the job takes a lot of the stress out of work
being in that situation also makes you realize you don't have to put up with office crap or a terrible boss.
User avatar
deaddog
Veteran Contributor
Veteran Contributor
Posts: 3422
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Re: Income taxes pushing me towards retirement

Post by deaddog »

Flaccidsteele wrote: 11 Jun 2018 19:28
You alluded to one factor that I also experienced:
tandemkayak wrote: 08 Jun 2018 07:54 It has been a bit boring at times because all of my friends are still working...
What you are saying is that you don't have any friends. You have acquaintances you work and socialize with who you have nothing in common except the job.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
OnlyMyOpinion
Veteran Contributor
Veteran Contributor
Posts: 4231
Joined: 24 Jan 2014 23:17

Re: Income taxes pushing me towards retirement

Post by OnlyMyOpinion »

I read it as meaning that once retired, my friends are still busy working so can't form part of my retirement circle/activities, etc. They can still be friends outside of work but their available time is much more limited.
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Income taxes pushing me towards retirement

Post by kcowan »

I just attended the celebration of life of a Megacorp friend (cancer). Lots of my peers were there. With very few exceptions, the ones that still saw each other had some common bond outside work: tennis, golf, skiing, bridge etc. (For the deceased friend, it was travel, wine and cats.)

Having been retired for 15 years now (and 25 years after Megacorp), most of my friendships have developed after retirement. If you approach it with that attitude, you will not be dissapointed. There will also be friends that you outgrow since personal growth continues after retirement.
For the fun of it...Keith
SQRT
Veteran Contributor
Veteran Contributor
Posts: 5441
Joined: 01 Nov 2012 11:33
Location: Ontario/Arizona

Re: Income taxes pushing me towards retirement

Post by SQRT »

kcowan wrote: 12 Jun 2018 11:33

Having been retired for 15 years now (and 25 years after Megacorp), most of my friendships have developed after retirement. If you approach it with that attitude, you will not be dissapointed. There will also be friends that you outgrow since personal growth continues after retirement.
Agree. Life moves on. You change and so do your friends (at least some of them). Making new friends in retirement seems like an obvious thing to do. You have more time for interesting things like travel, eating out, hobbies, physical activities like biking or skiing, etc. Stands to reason you will make new friends who share these activities. Keeping a healthy social network in retirement and avoiding isolation is very important.
afulldeck
Contributor
Contributor
Posts: 606
Joined: 07 Sep 2017 10:23

Re: Income taxes pushing me towards retirement

Post by afulldeck »

tandemkayak wrote: 01 Sep 2017 14:19 It is not uncommon for the government to impose heavy taxes on things that it wants to discourage like alcohol and smokes. I believe the heavy taxation on income ends up having a similar effect (at least on me).
I've been thinking about this quote while I was preparing my end of the year taxes. I have to admit, taxes have exactly the same discouraging affect on me. Maybe more so these days, since GoC spending has apparently no boundary limits in the recent 5 years. I know I like to work, but I'm really disagreeable to how the government is wasting the hard earned dollars that I'm forced to contribute. It might be time to throw in the towel and leave....

What I fail to understand is, why tax income at all? Why tax productivity? Why make it an income burden? If we took that income burden away, Canadians might become more industrious since they could make as much as their hearts desires. It might be a boon to the economy. People who make more, spend more. So Abolish income taxes. For revenue let's just tax the sale of goods.

Yes I know wishful thinking...in this overtaxed Country
formerpatriot
Veteran Contributor
Veteran Contributor
Posts: 1005
Joined: 08 Sep 2018 14:37

Re: Income taxes pushing me towards retirement

Post by formerpatriot »

afulldeck wrote: 02 Jan 2023 15:08 …in this overtaxed Country
That is hardly a fact.
I would say it is an opinion.
An opinion that I do not share.
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Income taxes pushing me towards retirement

Post by AltaRed »

There would probably have to also be some kind of net worth tax to ensure much of that wealth accumulation actually makes it back into the economy. Can't have money not being circulated for the economic multiplier effect.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
brucecohen
Veteran Contributor
Veteran Contributor
Posts: 13310
Joined: 20 Feb 2005 16:47

Re: Income taxes pushing me towards retirement

Post by brucecohen »

formerpatriot wrote: 02 Jan 2023 15:27
afulldeck wrote: 02 Jan 2023 15:08 …in this overtaxed Country
That is hardly a fact.
I would say it is an opinion.
An opinion that I do not share.
Latest OECD stats indicate that Canadian income tax is above average for developed countries BUT below average after factoring in social security tax paid by employers and employees. See page 9. Our income tax bite is probably above average and social security bite below average because OAS is entirely funded from general revenue.

Note that our income tax bite includes the cost of health insurance. Some OECD countries also do that while others largely fund health insurance through private plan premiums not included in the income tax stats.

Using 2021 data this table puts Canada slightly below the OECD average for govt's total tax take, including property and corporate tax, as % of GDP. Canada was 33.2%. OECD average was 34.1%.
Last edited by brucecohen on 02 Jan 2023 16:56, edited 1 time in total.
afulldeck
Contributor
Contributor
Posts: 606
Joined: 07 Sep 2017 10:23

Re: Income taxes pushing me towards retirement

Post by afulldeck »

AltaRed wrote: 02 Jan 2023 15:33 There would probably have to also be some kind of net worth tax to ensure much of that wealth accumulation actually makes it back into the economy. Can't have money not being circulated for the economic multiplier effect.
Perhaps, but one would think that many folks would be happy to pay for snow removal, grass cutting, meal preparation etc generating more of the multiplier effect that your looking for....
afulldeck
Contributor
Contributor
Posts: 606
Joined: 07 Sep 2017 10:23

Re: Income taxes pushing me towards retirement

Post by afulldeck »

brucecohen wrote: 02 Jan 2023 16:45
formerpatriot wrote: 02 Jan 2023 15:27
afulldeck wrote: 02 Jan 2023 15:08 …in this overtaxed Country
That is hardly a fact.
I would say it is an opinion.
An opinion that I do not share.
Latest OECD stats indicate that Canadian income tax is above average for developed countries
Interesting document and it show Canada is up there. Page 11, 13 caught my eye.
afulldeck
Contributor
Contributor
Posts: 606
Joined: 07 Sep 2017 10:23

Re: Income taxes pushing me towards retirement

Post by afulldeck »

formerpatriot wrote: 02 Jan 2023 15:27
afulldeck wrote: 02 Jan 2023 15:08 …in this overtaxed Country
That is hardly a fact.
I would say it is an opinion.
An opinion that I do not share.
Great, feel free to write the government a check for more. Your free to do so, but you won't. I think I have reached my Laffer Curve moment...
brucecohen
Veteran Contributor
Veteran Contributor
Posts: 13310
Joined: 20 Feb 2005 16:47

Re: Income taxes pushing me towards retirement

Post by brucecohen »

afulldeck wrote: 02 Jan 2023 17:07 Interesting document and it show Canada is up there. Page 11, 13 caught my eye.
Again, Canada is disadvantaged in comparisons of income tax rates alone because we fund OAS and health care in large part through income tax revenue while other countries don't. The better comparison is total tax revenue from all sources as % of GDP. That's shown in the second table I linked. Canada was just below the OECD average in 2021.
brucecohen
Veteran Contributor
Veteran Contributor
Posts: 13310
Joined: 20 Feb 2005 16:47

Re: Income taxes pushing me towards retirement

Post by brucecohen »

afulldeck wrote: 02 Jan 2023 17:14 I think I have reached my Laffer Curve moment...
Alas, as documented here, the Laffer Curve failed when actually applied in the real world.
The deep income cuts that Kansas enacted in 2012 and 2013 for many business owners and other high-income Kansans failed to achieve their goal of boosting business formation and job creation, and lawmakers substantially repealed the tax cuts earlier this year. The Kansas experience adds to the already compelling evidence that cutting taxes does not improve state economic performance.Former supporters have offered explanations for this failure to prevent the Kansas experience from discrediting “supply-side” economic strategies more broadly. But the evidence does not support these explanations. Rather, the Kansas experience adds to the already compelling evidence that cutting taxes does not improve state economic performance.

In 2012 and 2013, at the urging of Governor Sam Brownback, lawmakers cut the top rate of the state’s income tax by almost 30 percent and the tax rate on certain business profits to zero. Under “supply-side” economic theory, these deep tax cuts should have acted — as Brownback then predicted — like “a shot of adrenaline into the heart of the Kansas economy,” stimulating strong growth in economic output, job creation, and new business formation. But in reality, Kansas underperformed most neighboring states and the nation on all of those measures after the tax cuts.
Post Reply