A Tragic Thing of Beauty

Zero Percent Withdrawal Retirement Plan

Saw this at Seeking Alpha today: Zero Percent Withdrawal Retirement Plan

I like this article. This is what I'm planning to do with my retirement accounts, and I've often wondered why I don't see more people reporting that they pursue the same method. It seems like a no brainer to me: do not spend your principal, which can produce income, because you may find that you have more years of life than you do dollars of principal.

I also prefer this approach because it requires that one roll with the punches, so to speak, rather than trying to force an unlikely/impossible result from a retirement account. What I mean is that unlike a defined benefit model (an arrangement in which your distribution is X amount and the account manager attempts to sustain that payout through market swings in either direction), a dividend/interest-only distribution strategy can see the distribution fluctuate up and down, but do so with a greater chance of living to fight another day since it is not principal that is being drawn from during market downturns.

This approach also provides a benefit that cashing out a percentage of principal does not: while market fluctuations are common, dividend cuts are less so. Instead, it is dividend increases that are relatively more common.

It still requires that one spend below their means to make it work (like everyone should anyway). If one's investments are spread out enough such that no one of them constitutes a major percentage of the total income of the portfolio, any dividend or interest rate cuts should be easily weathered and later adjusted for (and if you reinvest any unspent money periodically, a dividend cut may only mean a slight reduction in the margin between your portfolio's total income and the last dollar of your budget - discipline pays).

When You Light A Fire Under Someone, They Move

Following on the heels of President Obama's State of the Union address last night, I spotted this Barron's article this morning:

Barrons: Millionaires Won't Sit Still for Higher Taxes

This dovetails with the article I posted last night about U.S. citizens becoming former U.S. citizens to avoid taxes, though the methods described in the Barron's article are far less drastic. Bottom line: the minority of people being targeted here are a moving target (and they can afford to be very mobile). Unless they think the purpose of an individual human life is to support the whims of government (doubt that), then move they shall: leave New York for Florida, buy municipal bonds, offshore; the list goes on.

I also saw this U.S. News and World Report article: 3 Myths About Mitt Romney and the Rich

This one fits the theme I have going here this morning, too. This is all old hat stuff to people who are familiar with the topic, and it probably won't change the minds of the envy class about anything (it's nearly impossible to convince someone of the falsehood of their religion). The article does contain at least one gem that, old or new to you, is worth repeating again and again: wealth is not a zero sum game. Again: WEALTH IS NOT A ZERO SUM GAME.

Finally, on the SOTU address, read through this article at Zero Hedge: President Obama's State of the Union: Ten Skirted Issues

Good read, but I hope that Prins is wrong about her conclusion.

1,024 Became Former U.S. Citizens In First Half Of 2011 Over Taxation

"Rather than deal with the complexities of U.S. tax law, Americans living overseas are increasingly renouncing their citizenship in order to avoid paying their income taxes.

According to National Taxpayer Advocate Nina E. Olson, approximately 4,000 people gave up their citizenship from fiscal year 2005 to FY 2010. Renunciations increased sharply within the past three years, from 146 in FY 2008 to 1,534 in FY 2010. And during the first two quarters of FY 2011 alone, 1,024 Americans ditched their citizenship."

Read more: Tax Evaders Renounce U.S. Citizenship

That headline, it's wrong. Tax evasion is not paying a tax that you are legally required to pay. Tax avoidance is doing something that legally exempts you from taxation of some sort. Renouncing your U.S. citizenship and being in the country for less than the maximum allowable time legally exempts you from a requirement to pay U.S. income taxes.