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retirement planning is something that everyone should consider, regardless of age or income level. We all dream of a comfortable and secure retirement, where we can enjoy our golden years without financial worries. However, many people overlook a crucial aspect of retirement planning – the concept of being poor on paper.
Being poor on paper may sound counterintuitive, but it is a retirement plan strategy that can significantly benefit your financial well-being in retirement. This approach involves structuring your finances in a way that reduces your taxable income during retirement, thereby maximizing your retirement savings and minimizing taxes.
The primary concept behind being poor on paper is reducing your taxable income by utilizing tax-deferred retirement accounts such as a traditional IRA or a 401(k). These accounts allow you to contribute pre-tax income, which lowers your taxable income for the year. By doing so, you not only save on taxes in the present, but you also defer taxes on your savings until withdrawal during retirement.
Another method to consider is utilizing Health Savings Accounts (HSAs). HSAs offer triple tax benefits, as contributions are tax-deductible, earnings are tax-free, and withdrawals for qualified medical expenses are also tax-free. By contributing the maximum amount allowed each year, you can build a tax-free nest egg for healthcare expenses during retirement.
Real estate investments can also play a significant role in being poor on paper. Rental properties offer various tax benefits, including depreciation deductions and the ability to deduct expenses such as property taxes, mortgage interest, and repairs. These deductions can help lower your taxable income and maximize your retirement savings.
Furthermore, Roth IRAs can be a valuable tool for those aiming to be poor on paper. While Roth IRAs are funded with after-tax dollars, the earnings grow tax-free, and eligible withdrawals in retirement are also tax-free. By diversifying your retirement savings between traditional tax-deferred accounts and Roth accounts, you can strategically plan withdrawals to minimize your tax liability.
Another crucial aspect to consider when aiming to be poor on paper is controlling your expenses during retirement. By keeping your expenses low and living within your means, you can reduce your taxable income requirements. This can be achieved by downsizing your home, cutting unnecessary expenses, or relocating to an area with a lower cost of living. By doing so, you can stretch your retirement savings further and potentially reduce your tax liability.
It is important to note that being poor on paper does not mean living in poverty during retirement. Instead, it is a smart financial strategy to minimize your tax burden and maximize your retirement savings. By strategically planning your contributions, utilizing tax-advantaged accounts, and controlling your expenses, you can enjoy a comfortable retirement without the added burden of excessive taxes.
In conclusion, retirement planning is a crucial aspect of financial well-being, and being poor on paper is a retirement plan strategy that should not be overlooked. By strategically structuring your finances, utilizing tax-efficient accounts, and controlling your expenses, you can minimize your tax liability and maximize your retirement savings. So, start planning for your future today and aim to be poor on paper when it comes to retirement!
I agree !
I wouldn't be surprised if assets are taxed or even partially confiscated (what's the difference) as that sort of thing is quite popular with voters these days.
this is an interesting perspective. Mathematically it doesn't make sense, but same can be said for never paying off low interest loans. We're just emotional humans at the end of the day, so eliminating risk (which includes taxes) makes sense. Worth considering.
I rent. How can I fully retire??
The best financial advice I have ever received, period. I wish more people see this, may be splash it on CNN everyday.
This advice is gold.
This distinction seems a little silly to me. You can either look poorer on paper while working or after retirement. Tax-deferred accounts are how you look poorer on paper when most people's marginal tax rates are the highest. Also, wouldn't somebody trying to optimize their finances intentionally err on the side of spending less due to the psychology you mentioned? Deferring spending to the fixed income retirement years is arguably better for reducing overall consumption, thereby increasing longevity and reducing the need to work. The $850k brokerage account may be worth more than the $1m 401k account, but it may have very well taken more than $1m in pre-tax income to get to that amount, so the comparison is kind of a moot point. I still think most people in the middle tax brackets should prioritize tax-deferred accounts, primarily because there is always the option to retire early and/or perform Roth conversions to minimize taxes, but the decision to go Roth cannot be undone later if it turns out pre-tax would have been better. I do get the point that you frequently make about marginal tax rates in retirement being surprisingly high for big savers because of Social Security taxation, but to me, the solution to that problem is just to retire earlier, or simply keep working if it makes you happy and just accept the higher tax bracket as a good problem to have.
Property tax sucks. I paid for that property with after tax dollars and yet I still have to pay taxes on the property.
I am too late to this party. I plan to retire at the end of this year. All of my money is in a traditional IRA. But at least I have some money. I Love your look poor on paper angle. I like to look poor but am actually not poor. I laugh at the moron's who look rich but are so broke you can smell it-:)
Most programs will not allow you to qualify if you have assets. That’s the problem. Even if you don’t pay taxes your income is too high to qualify. Same with ACA it’s not taxable income, it’s gross income that they care about. I get your point however.
Or you could also retire not needing the income. People who need high income will likely more in taxes when they retire.
We have zero debt and very little in IRA. I couldn’t qualify to buy a ford pinto on paper. Still work as a dentist 2 days a week and we live totally on cash. Life is good!
That is a good point, the mental aspect of not paying tax during older age should also be considered, it is not just about Total Tax paid but also the timing of tax liability.
Josh, What about people like myself who have made too much to contribute to a Roth. I have put extra money into the VTI when I can, but it's not allowing me to show poor on paper…..
Re contributing pre-tax dollars to 401(k) vs. after-tax dollars taxable brokerage account, my accountant says the higher the rate of return, the better it is to defer.
Great video. I retired last year with only 22% of my investments in pre-tax accounts. I absolutely like not having so much in pre-tax accounts. I am not worried about any Roth conversion. Had I gone 100% pretax, my investment account total might look higher but I like the comfort of knowing I will face minimal RMDs later in my retirement. To me, this just makes everything a bit more predictable. I do not trust the government not to go after 401K and other pretax savings at some point.
Poor on paper!! Funny! Considering retiring early at 64. Would get about 2k from pensions. Going to delay SS and draw money tax free from my taxable brokerage account. Have to keep the income low so we can get Obamacare for a year. I can get a plan that is better than my current one with my employer for 1/3 of the price.
Great job josh, love the humor
Josh, really great video. Thank you
Bravo! Totally agree!
Yup, that's why I switched to a Roth 401k against my CPA's advice. Peace of mind.
I’m retired, no money in a taxable/retail account, 88% of nest egg in regular IRAs and only 12% in a Roth IRA. So I guess I did it backwards! Nest egg should be enough to see me through but it really hurts my feelings when Uncle Sugar gets a cut of every IRA withdrawal.
And Uncle Sugar is greedy and getting hungrier all the time. Lefty pols are already trying to sell a “wealth tax” concept. I hope the Roth promises are kept during my lifetime but I’m not all that confident.
No problem, I’ve got this one nailed, I’ve been poor for years.
Getting 60k in SS so I’m moving15k from IRA to Roth every year and still pay no taxes ….win/win!
Pretty sure your net liquid assets must be less than $2000 to qualify for Medicaid.
Thank you for this perspective. Started putting all investments into 457roth! Stings a bit with a smaller net pay….but it will be sweet tax free growth moving forward!
I don’t understand!! So not taxed on equity, property, net worth- got that, but we are taxed on distributions from ira, or brokerage acct, and social security… correct? So how are we poor on paper? Cuz I want some of that kool aide!
Fantastic video, so important. You also need low income on paper to receive marketplace healthcare with subsidy if you retire before 65. For me it took some calculations to figure out my max income to keep me in the 12% tax bracket.
"They don't tax you on net worth." Not yet.
Looking poor don't mean being poor. Most of my big ticket items are bought and hobby stuff is bought before retirement. The big items are payed off and after retirement only the basics are needed. Your hobbies can bring in extra bucks if needed. I sew leather and people are always asking for me to fix or make something. I just need to make sure it isn't going to turn into a full time job. Just remember working for someone else is building someone's kingdom but stay focused on building your own kingdom. When you retire you will enjoy your kingdom. Working for someone else is way overrated!
Thank you for this video. I’m in my mid30s and really thinking about retirement. I know it’s probably still early to ask but. Question: what about if you work for a company or agency that offers pension, how do you look poor on paper if it’s guaranteed income disbursement? I’m also maxing out my retirement. So it’s best to contribute to taxable instead? Isn’t that double tax if taken out the gains?
I am a new subscriber really enjoying your show.I learned I can put up to 19500 a year in my 457b roth.I plan to put in as much as I can for the next 15 years.Nothing better than tax free money when you retire.Keep up the good work.
Not yet…
I agree with your message. Though I'm surprised you didn't mention that we have some of the lowest taxable rates in our history at the moment. That to me is the greatest argument for paying the taxes now. In 2026 the tax rates go back up if Congress doesn't extent the current rates.
The most important thing when planning your retirement has nothing to do with investments, or how much money you have in a savings account. It's not how much you have, but rather, how much you spend. Your plan needs to include being "debt free" by the time you retire. I have retired debt free for 5 years. I haven't had to take one dime out of my retirement fund, or my savings account. A perfect retirement for me is freedom from working and financial freedom to go with it. Never forget, it's how much you owe, not how much you have that will hold you back. Freedom is found in the "debt free zone". That's where the "happiness" is too.
I heard you say that social security is not taxed however if 50% of your SS is part of ‘combined income’ and it exceeds $44,000 for married filing joint SS is taxed at 85%. Can you explain further about the combined income rule? Thanks