tj wrote: Sun Sep 21, 2025 7:18 pm
I just can’t fathom how taxes could be such a large portion of one’s expenses. Obviously there is no 95% income tax rate in any state, but to have 95% of one’s expenses go towards taxes, this sounds like some weird combination of extreme frugality in every aspect of life except for real estate with an extremely large property tax payment.
Hi tj I have been out backpacking for the last couple of weeks in the beautiful Sierra, enjoying the late summer vistas with less crowds and thanking myself for finally making the decision to retire early this summer so just got back to civilization this weekend and now responding.
I already responded above that I cancelled my RH card after returning from my trip. The rest is tangential to this thread but just for completeness.
Income =/= expenses. For some people expenses (other than taxes) go up proportionately with income, for others they remain constant. In my case my lifestyle never really changed between graduating college/ full working career and now retirement. Frugality hasn’t been the goal or forced habit, its just the natural outcome of being interested in nature/science/ intellectual pursuits/ clean healthy living and not being materialistic.
This being a financial focused forum, I have talked about this group of people: frugal people who also have reasonably high paying careers..and how to financially optimize for them. No wonder, most of my posts on this forum over the years end up being about tax optimization: deferred compensation, asset location, foreign tax credits and so on. Here is one of my earliest posts from the first month of joining this forum ~10 years back
Dirghatamas wrote: Sun Jan 03, 2016 9:55 pm
Taxes: Tax optimization is the main reason I consulted a CPA this year. My tax (federal + state + property tax) ~= 41X my expenses. This very forcefully taught me that optimizing my expenses is a complete waste of time compared with optimizing my taxes (41X more beneficial). Given that I always maximize 401K as well as HSA, the options left are 1) changing my taxable account from VG total stock/international stock to tax managed mutual funds. 2) Figuring out mega backdoor Roth 3) maximizing my contribution to deferred compensation where I was already contributing a fair bit already.
For 2015 tax year when I wrote the above post, I was starting to reach the peak of my earning years and taxes were 41/42 = ~98% of my expenses. I have a detailed yearly spreadsheet and it shows that for the last 10 years, taxes were always > 95% of expenses and now in retirement, they will be >90% for the next 10 years (due to minimum payout deferred compensation plans). There’s nothing weird or strange about it. Other than healthcare cost, most of my assets will go to focused charities/causes I am passionate about (nature conservancy and STEM education). To me that (spending on future generations) is a much more worthwhile use of my money than pointless conspicuous personal consumption.
As for why can’t a retiree optimize taxes even when retired, its due to the deferred compensation and passive indexing dividends time bomb. I will answer that in the next post.
