A few months ago, I read my first—and likely last—book on tax-planning: Tax Planning to and Through Early Retirement. It was my first book on the subject because, well, tax planning historically hadn’t ever exactly set my pulse racing. And my last, because, well, tax planning doesn’t exactly set my pulse racing.
Actually, that ain’t entirely true. Since learning more about federal and state personal income tax provisions after discovering FIRE (and that they were written by wealthy people for wealthy people), my interest in the topic went from 0% to, well, somewheres north of 0%. After learning that The Family could go on an Affordable Care Act health insurance plan and receive premium tax credits if we engaged in some tax planning optimization, my interest grew even more.
My pulse wasn’t racing, but did register on the pulse oximeter.
Optimal complex
Tl;dr on the book: it’s terrific . . . but details-packed and (tho this is a good thing) fairly comprehensive so it covers a lot. I consequently decided after reading the book that I’d have to read it one, and maybe two or three, more times to fully grasp and absorb it all.
As I write this post, I’m midway through my second reading. It was a good decision to read it again. A third read will be worth it, too, so I can put all the pieces together and more intuitively understand the big picture.
My major takeaways from the book are that we, The Family, mostly lucked into being able to realize optimal tax optimization in retirement. That’s a good thing, right?! Well, mostly yes. But a little no.
Yes, because who wants to pay more than necessary to the taxmen? Answer: not me.
It’s made me feel like a giddy schoolboy been nice to realize tangible results. Our net worth ultimately will have been positively impacted well into the six figures. If we live long enough, maybe even seven figures. That ain’t nothing.
But a little no because tax optimization takes brainpower and work, and possibly shorter-term financial sacrifice for longer-term benefit.
Given the hours I invested to understand tax optimization (and how to optimize for our specific situation), and then to execute on that, our potential return on time investment (ROI) is high. But those many hours coulda been used to take a hike, do something fun with The Family, or engage in lotsa other fun activities.
Ditto as to the shorter-term financial sacrifice for longer-term benefit. High ROI, but decreased spending money from our earnings and taxable account withdrawals in the meantime. To be clear, we’re not foregoing reasonable needs. Nor many “unreasonable” wants. But optimizing less could allow us to spend and do more now.
Dear Reader, maybe you’re thinking that there’s a balance, and that we’re not striking it right.
You’d be right. But it’s hard (for me). That ROI is a big, bright shiny object easy to grab ahold of.
While the tax optimization side of my brain is getting that dopamine hit, however, the enjoying-life-to-the-fullest side is—more than I’d like—head down, kicking rocks.
I resolved this year to loosen the purse strings on our spending. I’ve not done that as well as I’d have liked. Case in point, foregoing some things on my Big International Trip with Thing Two (The Younger) that I shouldn’t have. The trip was a great success. But it coulda been even better, and I certainly coulda thought far less about expenses during the trip.
That notwithstanding, I’ve indeed loosened the purse strings this year. Slowly, and not laissez les bons temps rouler-level. But loosened.
Progress.
A chill is in the air
I’m increasingly thinking of tax optimization in the same vein. More chilling out.
I’m far from alone in the FIRE community in wanting to optimize as to finances. The paradox is that for the lower income and/or net worth and/or non-FIREd among us, the ROI can be higher percentage-wise but lower dollar-wise and vice-versa for those with higher income and/or net worths and/or who’ve FIREd.
Tho I won’t recommend that the former folks err firmly on the side of tax optimization, mathematically, it’ll likely get them to their (optimal) financial position faster. Letting the tax optimization tail wag the living dog at little (maybe even a lot) might be worth considering.
But the latter folks? I get that the juicy, optimization-derived high-dollar results look sexy. Ironically, however, sometimes the juicier the results, the less advisable it may be to optimize for them. I mean, at some point, you’ve won the game. By that I mean that even if you spend to your wild heart’s content—not just in mild excess of your reasonable spend, but to the laissez les bons temps rouler-level—you’ll still die with (far) more than you wish you did.
What’s the purpose of spending lotsa time and brainpower perfectly optimizing at that level? To keep what’ll likely be an increasingly smaller percentage of your net worth in your pocket instead of Uncle Sam’s and Uncle/Aunt [insert your state’s governor’s name (and your town’s mayor if you pay local income taxes) here]? Again, worthwhile for those not at their (optimal) number. Less so for those who’ve won the game.
Shifting this mindset can be tough. As I’ve confessed, I’m exhibit number one. I mean, I did just say that I’m reading a tax planning book not once, not twice, but thrice! I rationalize this by noting that my goal is, in no small part, an educational pursuit. But also because although it happens to have tons of different financial benefits, I really just hope to ultimately have such comprehensive knowledge that I can implement some big strategies and tactics, and not trouble myself with smaller ones.
And in the end . . .
In any event, I think adopting this mindset is a shift increasingly worth working on. Let the living dog know he’s won and have (more of) his day.
