Tax Refunds and Stress Tests: An Early Retirement Milestone

Source: Zazzle.com

Source: Zazzle.com

Right in the middle of making popcorn one evening last week the phone rang. A perfect example of snack interruptus. As I continue to mend from a recent surgery, snacks are pretty much the only excitement I have at the moment.

The call was from our accountant and her timing couldn’t have been worse. The new season of “Humans” was just about to start, and I was psyched to again watch actors portraying robots who in turn are portraying humans. I really like this show.¹ As disappointed as I was with the interruption, I had to admit that this is what happens when one keeps a west coast accountant and then moves to the east. Our evening was in full gear; hers hadn’t even started yet.

Only the week before I had mailed back her “organizer” with all of our tax information for 2016. I knew that we’d hear from her soon, and I was bracing myself for what fresh hell awaited us this year. The past two tax seasons had been disappointing due to Gorgeous earning more money than any of us anticipated. Darn the luck, you know?

To stem our April bleeding this time around, Gorgeous made sure in 2016 to send the IRS a higher fixed percentage of her estimated quarterly payments. Our accountant’s software tends to suggest payments that aren’t realistic compared to what she’s making in real time. So after a long discussion with her last season, we changed the calculation and upped the amounts for the new year.

Our newly found diligence paid off for us. Between her higher estimated payments, and the automatic withholdings taken from both my retirement annuity and part-time job, we got a refund back this year of just under $5,000. It’s not ideal to overpay like that, but at the same time it’s a message that we’re finally getting this whole retirement thing under control. It’s a meaningful milestone.

At the accountant’s suggestion, we applied the refund to Gorgeous’ next estimated tax payment for this coming April.

Well. How nice that she’s taken care of. I guess I can kiss goodbye that box set of vinyl Genesis albums I’ve had my eye on for over a year. I remember a time when a refund meant that you could celebrate and buy something nice for yourself. Those days have apparently ended. It’s now all about prudence. Bitter? Who, me? Nah. 

Sigh. Always "next year"... Source: Amazon.com

Sigh. Always “next year”…
Source: Amazon.com

My taking early retirement in 2014 was a sudden and spontaneous decision. A medical concern for me at the time had a major influence, as was a change in my job that hadn’t worked out quite as I hoped it would. Although I never had a strict time frame in mind, it was always a dream of mine to retire before I reached age 60. But at that point in 2014, I was at least three or four years away from busting a move.

Nevertheless I went ahead and took the plunge. I was 55. 

But there were some hurdles in my path:

  • In spite of being divorced for four years, I had a couple of financial entanglements with my ex which remained unresolved.
  • My 401(k) took a small hit four years earlier courtesy of our divorce decree. I was able to get it back to pre-divorce levels thanks to increased contributions, but the overall balance was still short of my previous goals.
  • My amazing new wife brought me lots of unconditional love and happiness, plus a Julia Child-like mastery in the kitchen. But sadly, she had absolutely no personal savings of her own. Divorce hadn’t been as “generous” for her as it was my ex.

Nearly every single retirement article you read advises to plan way ahead of time before walking away from a career. But my own planning was literally squeezed into months instead of years. Although my fundamentals were all there (pension, a substantial 401(k), ample Social Security credits), I was nonetheless confronted by a creeping parental-type voice whispering in my ear saying, “Dude, you’re really taking a risk here.”

Even as a spirit, I really wish Mom would stop calling me “Dude” on those periodic visits of hers. It’s creepy.

Gorgeous and I spent many a night before I retired discussing our plans and going over different financial scenarios. We used spreadsheets and a pendulum (each of us bring different skill sets to the table). We were trying to wrap our minds around how we’d pull this whole thing off without my having to become a dish washer at IHOP and her waiting on tables.²

"Can we assume a modest 3% in the S&P for the next ten years or a more robust 12%?" Only her archangel knows for sure. Source: Pixabay.com

“Can we assume a modest 3% in the S&P for the next ten years, or perhaps a more robust 12%?” Only our archangel knows for sure.
Source: Pixabay.com

To be sure, we’ve experienced some rocky moments and unexpected challenges after I walked out that career door a free man in 2014. For one thing, Gorgeous drastically underpaid her estimated taxes that first year, and boy did we get a whopper of a tax bill the following April. That one hurt.

She was also hit by an absolutely perfect storm of dental issues that began as soon as we arrived in Florida. Like a series of dominos falling, it started with one tooth, then the adjacent tooth, followed by the next one, and so on. When all the dental repair was finally finished by early 2016, our total out-of-pocket expenses for two dentists, one endodontist, and an oral surgeon amounted to over $17,000 (after insurance payments).

I decided later to view all of the above as a kind of “stress test,” similar to those written for the Dodd-Frank Act to test if a banking institution has enough capital to withstand adverse conditions. Ours wasn’t a simulation but we thankfully passed the test with enough of our own capital still intact.

So one milestone noted and filed in the cabinet.

Other milestones on the horizon are the purchase of a new home later this year, building a sizable Roth IRA investment for Gorgeous, and somehow find a way to start traveling more around the U.S. We both have a strong desire to make our way up to Nantucket and beyond.

Oh, and someone desperately wants two kitties.

And while all of that is happening, I once again repeat how I’ll be watching (and bracing myself) for deviations to the campaign pledges the Orange One made about social security and medicare. He made strong promises about keeping both programs intact because of their “popularity” (his word). Let’s pray someone in that administration can explain to him that a government program’s popularity isn’t the same as ratings on TV. I’m not very optimistic about our chances.

Now if you don’t mind, please leave me alone with my popcorn. I’ve had enough interruptions for one day.

Until next time…

¹ For American audiences: Monday nights on AMC. Please also be advised that whenever I publicly endorse a TV show, it becomes a fate worse than death for that particular series. Look for it to be cancelled sometime next summer.

² Apologies to readers who actually work at IHOP and are offended. I think I actually meant Denny’s.

 

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26 thoughts on “Tax Refunds and Stress Tests: An Early Retirement Milestone

  1. There is a lot of uncertainty in life, and when we make the decision to retire (or if the decision is forced on us), we often have fewer opportunities to adjust to “surprises.” We had a year where we ended up owing our good uncle a lot more taxes than expected, made some changes the following year, then got back a windfall (of our money, loaned to the government at zero interest). I think we have it worked out now… I hope. Of course now we have the Orange One to deal with and all the uncertainty and chaos he is churning up. It’s hard to plan for crazy.

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  2. While engaged with this topic at a personal level, I find that shuddering and whimpering occur at even reading the words ‘retirement’ and ‘prudence’ in the same sentence. Still in denial, I guess. Better buy that Genesis box before reality sets in…

    Liked by 2 people

  3. We started getting our act together with respect to savings and retirement in our early thirties after my Mom died. CH retired when he was 45 after 23 years in the military and then retired again after 12 years in banking. When he retired the first time he freaked me out because he was showing no signs of wanting to go back to work. I was not so gently pushing him out the door every morning to walk for a couple of hours so I had some time to myself. We clearly were not ready for retirement. Second retirement was the right time in all ways! I didn’t push him out the door to walk for two hours… I thoroughly enjoy having him home. We didn’t really have any rocky financial moments… I truly was more worried about being together all the time. The Orange One better not mess with my happy retirement!

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    • A divorced friend of mine once said (before my own), “Financially, it’s the dumbest thing one would ever do.” Of course, the corollary to that is probably along the lines of, “emotionally, it’s usually the smartest thing one could ever do.” Anyway, suffice to say congrats to you and CH for a long, happy marriage. You therefore get both the financial and the emotional rewards. 😉

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  4. We’d planned to retire early. My Studly Doright worked for a major natural gas company, and we could see the happy writing on the wall. Unfortunately that company was ENRON and that writing said, “Disaster!” I know we’ll be ok, but he was so looking forward to being retired before 60.

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  5. I need a pendulum. I’m retired 5 years and my husband closer to 10. Taxes are always a nightmare. No matter how much I jiggle it’s either due to them or us. When we owe it always seems to be a lot more than those years when they owe. Boogers! As for your dental, I always say we are one major medical disaster away from the trailer park. (No offense to anyone living in a camper. I could get used to it if I find one that fits 4 cats and 2 humans.) Medicare doesn’t cover a lot of the newer miracle drugs so whatever I get better respond to aspirin and penicillin. I’m worry about the orange one too. (How did he get to be orange? Bad spray job?)

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  6. We can’t retire ever. I’m taking a break this year as what I earn get taxed anyway . I might end up retiring from outside work. Hubby on the other hand is still slaving away. We are both part time at the business which I can’t see us ever giving up

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  7. Yeah, I understand. I have to be careful about some of my “complaints” because they’re also classified as “white people’s problems.” Millions of people would love to my so-called problems right now. I fantasized for probably the last six or seven years of my career to walk away and figure something else out. I finally did it, it’s sometimes a little intimidating when I ponder it, yet I still have some safety nets in place that many others don’t have.

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  8. I’ve been retired since New Years Eve 2007. Was living in Weehawken, New Jersey on the banks of the Hudson River (directly opposite West 72nd Street and Riverside Drive, in a luxury, river front one bedroom at the time after 35 years of Manhattan living. By May of 2008 I had moved to a two bedroom splendid apartment in Sarasota, FL. Twice the space for half the rent. I have since moved to Port Wentworth getting additional square footage (bigger rooms but same number of rooms as well as brand new) for an additional savings of about $300 per month.

    I’m single and ownership of a home and the idea of owning a home doesn’t do much for me. My brother already owns a home in CT, and another 40 minutes away in nearby South Carolina, so he surely doesn’t need a third house.

    As for my money, a good deal of it lines the pockets of hoteliers and bars and restauranteurs in far flung places all over the world. From Amsterdam to Rio de Janeiro, from Vancouver BC to Bali, from Harbin China to St. Croix in the US Virgin Islands, and from Tokyo Japan to Dusseldorf, Germany – been there done that. Which means that even more of my money went to international airlines and Japan Rail Pass, and Eurorail. I can navigate the Metro in Paris, Singapore,Tokyo, Hong Kong, Bangkok, and London; and I can ride the trams in Amsterdam, Zurich, Barcelona all without aid of a map. And I can take a snooze on the beaches of Rio, Malaysia, Bali, and Phuket, Thailand as well as anyone.

    I’ve hiked trails in Interlaken Switzerland, Hong Kong, Bali, Vancouver, and even in the mountains in the south of France.

    What’s more I’ve even been horse riding outside of Shenzen China.

    My tax accountants have always gotten me refunds on my taxes, and my 401K is still untouched. So Marty, from where I sit or stand, I’ve avoided some of the issues you discussed in this post. Life is good –

    Then today I read that the Coast Guard Budget is going to be cut as well as the FEMA. Maybe the Orange One can legislate away Hurricanes, Floods, Earthquakes, forest fires, and Tornados. And maybe no one will try to gain entrance into the USA, or sneak drugs onto our shores from the sea.

    But as long as there’s a wall we will all be safe. Ha ha…

    Liked by 1 person

    • Just like one of your reviews, you had me hanging to every word all the way to end, Mike. Well done. And indeed, “ha ha” is right. So much has been turned on its head now that I can’t make sense of exactly where our priorities are at the moment. We were told during the campaign how important homeland security is, and yet in addition to the things you mention above, I learn this morning that airport and TSA funding is also on the chopping block because they need to find funding for the building of the wall. Um…

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  9. Pendulums? Really? Does Gorgeous write a blog? I’m assuming she’s also the one pushing for kittens? Maybe you should let her guest post because she sounds amazing…not that your Genesis loving self isn’t pretty cool but asking me over to cuddle cats is going to win over vinyl records every time (which probably says something about my cool factor lol!)

    Liked by 1 person

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