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Revisiting My Results

Richard Connor

I ENJOY WRITING for HumbleDollar—but I often feel I get more from the thoughtful reader comments than whatever insights I provided. For instance, in a recent article, I discussed some year-end financial decisions I was considering. Two readers made comments that caused me to review my decisions, while also delivering a few dollars’ worth of humility.

The first comment identified an error in my spreadsheet analysis. I noted that my marginal New Jersey state income-tax rate was 8.97%. A reader questioned that number. When I reviewed my analysis, I discovered an error in my spreadsheet. A single cell had been deleted in copying the sheet from 2021 to 2022. The tax rate should have been 6.37%.

I hate making mistakes. My engineering mentors consistently encouraged me to perform “sanity checks.” I usually hand-check my spreadsheet calculations, but I missed this one. I decided to do a thorough check of everything. To my chagrin, I found another error, this time regarding the amount of state tax withholding from my pension. The amount assumed in the spreadsheet was thousands of dollars too high. Where did that error come from? I have no idea.

We moved from Pennsylvania to New Jersey in 2021. The errors are all associated with state income-tax calculations. New Jersey’s state income tax is far more complicated than Pennsylvania’s. The silver lining is it gave me a chance to fix my spreadsheet for 2022 and beyond—and reassess my conclusions.

Since my original, flawed calculations indicated a fairly sizable tax refund, I thought we’d use that amount to offset the taxes generated by a Roth conversion. But when my initial analysis also showed an incorrectly high combined marginal tax rate, I thought we’d forgo a Roth conversion in 2022.

Correcting the errors showed that we’ll get a significantly smaller refund but also pay a lower marginal tax rate. With these updates, I decided to go ahead and make a smaller Roth conversion.

The second comment mentioned two issues that my article didn’t specifically address. The first concerned providing for a surviving spouse. When one spouse dies, the surviving spouse typically inherits the deceased spouse’s retirement accounts. The surviving spouse will then be responsible for required minimum distributions from the couple’s combined retirement account balances, but the survivor will be paying taxes as a single filer and probably at a higher marginal tax rate.

Longevity in my wife’s family is greater than mine. Her grandmother lived to age 97 and her mother to 88. Vicky is healthy and takes good care of herself. We have taken several steps to make sure she’s well taken care of should I die first. For my company pension, I selected a joint-and-survivor option. Vicky will receive 75% of the current amount if I die before her. We’re also planning to wait till I’m 70 to claim my Social Security retirement benefit. I have the higher lifetime earnings and waiting will maximize her survivor benefit. With the pension and Social Security, plus our retirement savings, Vicky should have enough to live comfortably after I’m gone.

The second part of the comment addressed the sunsetting of today’s relatively low federal income-tax rates. Today’s tax rates were set as part of 2017’s Tax Cuts and Jobs Act (TCJA). The TCJA made significant changes to the tax code, but many of its provisions will expire in 2026. Barring further legislation, tax rates will return to their 2017 levels. It’s been reported that extending the TCJA tax law changes would cost more than $2 trillion through 2033.

To assess complicated decisions and their financial impact over—I hope—decades of retirement, I use a retirement planning tool called MAXIFI. The tool has a detailed tax model that incorporates both the federal and state tax codes. The default federal tax model assumes that the changes from the TCJA sunset in 2026, and return to pre-2018 levels. When I reviewed the analysis of our retirement plan, I noticed that for 2026 and beyond our marginal federal tax rate goes from 24% to 28%.

The tool also enables users to explore “what if” scenarios, including what happens when one spouse dies. The base case assumes we’ll both live to 100. After running the base case, you can run a “survivor case” where you pick which spouse is the survivor and at what age the other spouse dies. I’m currently 65. I ran a series of cases where I died at 66, 70, 80, and 90. That’s hardly a pleasant thought. Still, everything ought to be fine financially: In each case, my wife should have sufficient income and assets.

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.

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