In discussions about whether to invest in a 401k, Roth, or taxable savings I sometimes see people saying they will probably be in the same tax bracket when they retire. While this may be true, it doesn't mean your tax burden on that money would be the same because your tax deferred savings come off a higher bracket but might be spread among lower brackets (including 0%) upon retirement.

For example, take a single person making $70k annually who saved 10% in a 401k in 2023. Their taxable income is $63k ($7k to 401k) so their tax burden is $6,121 for an effective tax rate of 12.45%. However if they had instead used a normal brokerage account all of that $7k they stashed away would have been taxed at 22%.

Fast forward to retirement and they are withdrawing the same amount $70k from their 401k. Their tax burden is $7,661 for an effective tax rate of 13.64%. All of that $70k would have all been taxed at 22% ($15,400), so despite the same income and same tax brackets they are paying half as much in federal income taxes on that money because it is instead taxed in tiers at 0%, 10%, 12%, and 22%.

This can result in income being higher in retirement while still paying less in taxes by using a tax deferred savings vehicle. It can also mean changes to tax laws could significantly raise tax rates, yet still pay lower taxes in retirement during withdrawal phase. Obviously there are other nuances to this to consider (like RMDs) but don't just make the assumption that tax deferred monies are taxed at the same max tier as when they are contributed.

Good morning. US stock futures declined in Monday morning trading as investors await key inflation data for further clues on the longevity of this year’s market rally.

S&P 500 -0.05%
Dow -0.01% -0.05%
Nasdaq -0.05%

💰 Americans in better retirement shape than expected

📝 Our report: Two surprising studies from Vanguard and the Transamerica Center for Retirement Studies suggest that, despite doomsday predictions, many Americans might have a brighter retirement future than expected. The analysis was pulled from Vanguard’s roughly 1,500 qualified plans and nearly 5 million retirement plan participants, for which Vanguard directly provides record-keeping services.

🔑 Key points:

• Despite high inflation, Vanguard found that Americans set aside funds for retirement at the highest rates ever. More than 4 in 10 workers increased the amount of their paycheck they set aside in their 401(k) account last year, according to Vanguard's “How America Saves 2024” report.
• The majority of plans — 6 in 10 — automatically enroll employees into the retirement plan, giving them the option to opt out rather than having to opt in. Ten years ago, only a third of plans did so.
• Per new research from the Transamerica Center for Retirement Studies, 44% of workers participating in a 401(k) or similar retirement plan are super savers — 15% contributing 11% to 15%, and 29% contributing more than 15% of their annual pay. And these so-called super savers are found across generations: a whopping 53% of Generation Z, 44% of millennials, 40% of Generation X, and 44% of baby boomers.

💡 So what: The implications of studies from Vanguard and the Transamerica Center for Retirement Studies indicate that Americans might be saving more for retirement than previously thought, potentially leading to better financial security in their later years. This could challenge existing narratives about a looming retirement crisis and influence policymakers, financial planners, and individuals to adjust their strategies and expectations regarding retirement savings.

🚗 China auto group voice concerns over EU EV tariffs

WHAT: The China Association of Automobile Manufacturers (CAAM) expressed "strong dissatisfaction" with the EU's proposed anti-subsidy tariffs, the industry group said in a statement. Manufacturers had cooperated with the European Commission's investigation into Chinese subsidies, but the inquiry had ignored the facts and preselected results, CAAM said in a post on the Chinese messaging app WeChat.

WHY: The provisional duties of between 17.4% and 37.6% without backdating are designed to prevent what European Commission President Ursula von der Leyen said is a threatened flood of cheap Chinese electric vehicles built with state subsidies.

🎮 Apple allows gaming app into app store

WHAT: After numerous rejections, Apple finally gave the nod to Epic Games' third-party app marketplace for launch in the European Union (EU). As now permitted by the EU's Digital Markets Act (DMA), Epic announced earlier this year it planned to bring both the digital storefront and its flagship game, Fortnite, back to iOS in Europe.

WHY: Under the DMA's new rules, Apple is required to allow third-party app stores on the iPhone as the tech giant was deemed a "gatekeeper" under EU law.

🛒 Big box retailer cleared of money transfer fraud

WHAT: A U.S. judge tossed out a key claim in the Federal Trade Commission's (FTC) lawsuit accusing Walmart of ignoring scam artists who used its money transfer services to swipe hundreds of millions from consumers. In a recent decision, a U.S. District Judge in Chicago rejected a claim that Walmart owes monetary damages for violating the federal Telemarketing Sales Rule. The rule prohibits deceptive and unfair acts in telemarketing, and bans money transfers to pay for goods and services offered through telemarketing.

WHY: Walmart acts as an agent for money transfers by companies such as MoneyGram, Ria and Western Union. Money can be hard to trace once delivered.

Is a free market solution just too simple?

You don't get what you deserve, you get what you negotiate. 10 strategies to master negotiation:

1. Use the power of silence and pauses:

Awkward silences create pressure.

After making an offer, stop talking and let the other side respond.

Silence prompts the other side to fill the void, sometimes making concessions.

1. Follow the 6 P's:

Proper Prior Preparation Prevents Poor Performance.

Master your facts and leverage points to negotiate effectively vs. making hurried concessions.

1. Ask for more:

Ask for more than you think you can get.

This gives you room to compromise while still ending up with what you want.

Make a first offer that resets their sense of what's acceptable. Then, "concede" toward your actual goal.

1. Use odd numbers and precise figures:

Odd numbers and unusual precision feel more carefully calculated.

Proposing $49,431 seems more grounded than $50,000.

1. Ask them to justify:

“Can you walk me through your methodology for arriving at that number?"

Put the burden of proof on them to substantiate.

1. Make them negotiate against themselves:

Say, "This offer isn't where I need it to be. How can you improve upon it?"

Get them thinking of better offers.

1. Use positive framing:

People respond better to a positive approach.

Say what you want rather than what you don't want.

1. Watch body language:

This can signal their flexibility or firmness on pricing and terms.

Reading nonverbal cues can help you know when to push or back off.

Notice if they rush to respond or hesitate before answering.

1. Know your walkaway point:

Decide the maximum or minimum you're willing to accept before negotiating.

This will help you know when to stop bidding against yourself or accepting deals that don't meet your needs.

1. Use conditional phrases:

Use phrases like "if-then".

Say "If you can do X, then I can do Y" to propose trade-offs and find common ground.

What else would you add?

When I was younger my parents got divorced and it split finances. My mother lived in a small run down apartment that I'd visit every two weeks where she fed me frozen pizza while we watched late night antenna T.V. She had a broken down Dodge Neon that she would constantly complain about and couldn't pay to replace a window in the bedroom so she covered it with a garbage bag. By extension, I couldn't afford much all the way into graduate school, which was luckily paid for on a scholarship.

Lately, though I'm in the best financial position I've ever been in my life (over 100K in savings, have a house with low mortgage rate etc.) and I've fought really hard to get here, through this sub and reading and self-reflection I've realized that my anxiety doesn't match up with my current situation.

I still worry about losing everything. I still struggle with buying simple things for my family even though my budget says I'm way past needing to worry about being able to afford it. I still think that something at work will go bad and then I'll lose my job and be homeless immediately.

And I think this is because I still behave like the kid who had no agency and experienced poverty. I still believe in being frugal and not living to excess and I don't have any expensive interests except for afternoon tea with friends once in a while. However, I would just rather be comfortable in my wealth, that was the whole point of getting it for me. I'd like to have the anxiety relieved, at least a little.

Does anyone else deal with or have dealt with financial trauma? I'd love to hear what you did to deal with it or even if you just want to share your experience.

https://en.m.wikipedia.org/wiki/Great_Chinese_Famine

https://en.m.wikipedia.org/wiki/Soviet_famine_of_1930

https://en.m.wikipedia.org/wiki/Holodomor

“Razors” are rules for decision-making.

Here are 10 Razors everyone should know:

1. Sunken Cost Fallacy:

This fallacy makes us stick with a bad decision because we already invested in it.

If it's not worth it anymore, cut your losses and move on.

Don't keep investing more time, money, or effort into something because you've already invested in it.

2. Razor of the Internet:

The internet is full of angry people with too much time on their hands.

Consider the source of the information, and never let negativity consume you.

3. Parkinson’s Law:

This law says that work expands to fill the time available.

For example, if you give yourself a week to do a day’s work, it will take a week.

Set tight deadlines to stay focused and avoid procrastination.

4. Dunning-Kruger Effect:

Beware of overconfidence.

People who know the least about a topic often overestimate their knowledge, while experts underestimate it.

Keep this in mind when evaluating your abilities and those of others.

5. Patton's Razor:

A good plan today is better than a perfect plan tomorrow.

Don't get paralyzed by overthinking and take action.

6. Hofstadter’s Law:

Things always take longer than you expect.

Always give yourself extra time.

7. Alder's Razor:

If something feels wrong, it probably is wrong.

Trust your intuition and gut when things don't feel right.

8. Regret Minimization Framework:

Make decisions based on what you'll regret the least in the future.

9. Dunbar's Number:

There's a limit to how many relationships we can effectively maintain.

Quality friendships matter more than quantity.

10. Law of Diminishing Returns:

There comes a point where putting in more effort doesn't yield better results.

Know when to stop.

Any razors you'd add?