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Regarding Post 741:............ Sorry I'm so late to the party. This thread slipped by me. Are you too steamed to discuss further, or will you play along with some numbers with me ? I am curious about the overall effects of the FairTax on a nestegg as you describe. If you'll play along, I'd like to look at the following: ............

I didn't come to this Fair Tax thread as a "pro" or "con". I came to look at an idea and to give it a fair shake.

A earlier poster brought up the point that the truly wealthy (such as parasites like John Kerry and Teresa Heinz who earned only a minuscule amount of the $500 million they now live on while paying negligible taxes......while calling me "The Rich".......) would finally be forced to pay a meaningful amount of tax. That is something that I would very much like to see.

On the other hand, the thrifty "worker bees" who get stung in the current tax system will get stung twice in the case of the savings they have already paid tax on.

The way I see it, there has to be reasonableness built into any transition and it is not unreasonable to ask that the money earned for X number or years of work not be taxed once with an income tax before being saved and the taxed yet again with a sales tax when it is spent.

As far as assurances from pigdog that it will be a wash because prices will magically drop 28%, sorry, I don't believe in the Easter Bunny.

In regards to my finances, I have always followed a "Millionaire Next Door" lifestyle even though I am a high earner. Even though I am of Baby Boomer age, the fact that I was a Cuban refugee at age 6 in the early 1960's and the fact that everyone in my extended family lost everything the family had ever had and we had to build their fortunes once again from scratch makes me psychologically akin to the Depression era/World War II generation.

With that mindset, once my medical career emerged out of the poverty and hell of pre-med, medical school and post-graduate specialty training, my goals in life were to never have myself or my children financially insecure again and to have zero debt.

Once the money started coming in, my first priority was to pay off the house we live in now and the house I owned as a resident.

After those two goals were accomplished, concentrated on building the nest egg. Medicine is a hellish lifestyle and, after 25 years of it, a retirement at age 55 is something I am looking forward to.

It really does not matter what my particular situation is because not everybody is like me.

Some individuals will swear by real estate and have every last penny in it. I see my overall portfolio as different sacrifices I made in my life or different breaks I got in my life.

My SEP accounts, etc., are breaks. They were places to save untaxed money and, if that money is taxed in the future, that is the way it should be.

My real estate is where I will live until I die (one house on Puget Sound) and what spits out $1,4000 moth in rental income (one house in San Diego, CA). After I am gone, they will belong to my two kids.

The money I have saved outside of retirement accounts and outside of real estate is the money I am most protective of. That is the money I had to save at the cost of conflict with a spoiled-rotten California Baby Boomer wife who believes that Daddy or her husband prints unlimited amounts of money in the basement so she can spend as much as she pleases. (Daddy doesn't have much savings to show for his life's work.)

In an era when the savings rate of most Americans is at rock-bottom, that is the portion of my net worth triad that will dwarf my retirement accounts.

Everybody's case will be different which is exactly why everybody can't be crammed into a one-size-fits-all formula.

My bottom line is that the money that I saved and has already been taxed once ( at the rate of what the gigolo John Kerry calls "the richest 1%" ) not be taxed again when I spend it at retirement at a rate of 28%.

I proposed a simple method of dealing with the double taxation issue.

I see no reason why it can't be adopted by the Fair Tax advocates.

OK, I'm going to take a shot at answering my own example:
1) What is the total nestegg amount ?
A) $4M
2) What is the portion in tax-deferred accounts ?
A) $1M
3) What is the portion in rental real-estate and how long will it have been held before selling to fund retirement ?
A) Zero.
4) What is the portion in after-tax accounts ?
A) $3M
5) What portion is in tax-free bonds ?
A) Zero
6) What "real" rate of return are you expecting in retirement on each portion of the nestegg ?
A) 5%
7) What amount do you expect to consume each year during retirement ?
A) $190K spent, with $40K of it on art classes, buying art, kid's college tuition, and trips around the world.
8) What is the size of the household ? (Not that the prebate amount sounds like it will be important to you.)
A) Just the wife and I.

Under the current 2005 income tax tables, ordinary income tax will be $34,200 on the first $182,800 plus 33% of everything above that but less thant $336K. Capital gains, qualifying dividends and interest will be at 15%. Non-qualifying dividends, options contracts, and short term gains are ordinary income. Some of my income from the after-tax accounts will be ordinary income, making my actual rate 16.5% rather than 15%.

Since we are Retiring at 55, and both tax-deferred and after-tax investment vehicles are essentially the same, the strategy is to use nothing from the tax-deferred accounts during the first five years. Then use up the tax-deferred accounts completely, then switch back to the after-tax accounts.

So during the first five years, I need $228K per year to end up with $190K to spend. During the next six years, I'll need to withdraw $246K each year to have $190K spendable. During the final 29 years of my life, I'll be back to the $228K/year figure and I'll die at age 95 with nothing left.

Year	Desired Income	Fixed Income	Shortfall	Savings Beginning Balance	Interest @ 5%	Needed Withdrawals	Ending Balance
1	$228,000	$0	$228,000	$3,000,000	$150,000	($228,000)	$2,922,000
2	228,000	0	228,000	2,922,000	146,100	(228,000)	2,840,100
3	228,000	0	228,000	2,840,100	142,005	(228,000)	2,754,105
4	228,000	0	228,000	2,754,105	137,705	(228,000)	2,663,810
5	228,000	0	228,000	2,663,810	133,191	(228,000)	2,569,001

In the meantime, the tax-deferred acount will have grown from $1M to $1,276,282. Now I am over 59 1/2 so I use up all of this tax-deferred money.

Year	Desired Income	Fixed Income	Shortfall	Savings Beginning Balance	Interest @ 5%	Needed Withdrawals	Ending Balance
1	$246,000	$0	$246,000	$1,276,000	$63,800	($246,000)	$1,093,800
2	246,000	0	246,000	1,093,800	54,690	(246,000)	902,490
3	246,000	0	246,000	902,490	45,125	(246,000)	701,615
4	246,000	0	246,000	701,615	35,081	(246,000)	490,695
5	246,000	0	246,000	490,695	24,535	(246,000)	269,230
6	246,000	0	246,000	269,230	13,461	(246,000)	36,691
7	246,000	0	246,000	36,691	1,835	(38,526)	0

Then I switch back to the after-tax account and pull $228K/year from it. While I was draining the tax-deferred acounts, this account rose back up to $3,450,000.

Year	Desired Income	Fixed Income	Shortfall	Savings Beginning Balance	Interest @ 5%	Needed Withdrawals	Ending Balance
1	$228,000	$0	$228,000	$3,450,000	$172,500	($228,000)	$3,394,500
2	228,000	0	228,000	3,394,500	169,725	(228,000)	3,336,225
3	228,000	0	228,000	3,336,225	166,811	(228,000)	3,275,036
4	228,000	0	228,000	3,275,036	163,752	(228,000)	3,210,788
5	228,000	0	228,000	3,210,788	160,539	(228,000)	3,143,327
6	228,000	0	228,000	3,143,327	157,166	(228,000)	3,072,494
7	228,000	0	228,000	3,072,494	153,625	(228,000)	2,998,119
8	228,000	0	228,000	2,998,119	149,906	(228,000)	2,920,024
9	228,000	0	228,000	2,920,024	146,001	(228,000)	2,838,026
10	228,000	0	228,000	2,838,026	141,901	(228,000)	2,751,927
11	228,000	0	228,000	2,751,927	137,596	(228,000)	2,661,523
12	228,000	0	228,000	2,661,523	133,076	(228,000)	2,566,599
13	228,000	0	228,000	2,566,599	128,330	(228,000)	2,466,929
14	228,000	0	228,000	2,466,929	123,346	(228,000)	2,362,276
15	228,000	0	228,000	2,362,276	118,114	(228,000)	2,252,390
16	228,000	0	228,000	2,252,390	112,619	(228,000)	2,137,009
17	228,000	0	228,000	2,137,009	106,850	(228,000)	2,015,860
18	228,000	0	228,000	2,015,860	100,793	(228,000)	1,888,653
19	228,000	0	228,000	1,888,653	94,433	(228,000)	1,755,085
20	228,000	0	228,000	1,755,085	87,754	(228,000)	1,614,840
21	228,000	0	228,000	1,614,840	80,742	(228,000)	1,467,582
22	228,000	0	228,000	1,467,582	73,379	(228,000)	1,312,961
23	228,000	0	228,000	1,312,961	65,648	(228,000)	1,150,609
24	228,000	0	228,000	1,150,609	57,530	(228,000)	980,139
25	228,000	0	228,000	980,139	49,007	(228,000)	801,146
26	228,000	0	228,000	801,146	40,057	(228,000)	613,203
27	228,000	0	228,000	613,203	30,660	(228,000)	415,863
28	228,000	0	228,000	415,863	20,793	(228,000)	208,657
29	228,000	0	228,000	208,657	10,433	(219,089)	0

So that's what I would expect to happen under the existing Income Tax code. My $4M lasted until I was 95 year old while I spent $190K/year and that was the end of it.

What about the FairTax ? Well, Out of my $190K/year spending, there is $20K that is "poverty level spending" for the wife and I. And there is $40K that is spent on education, used goods and travel outside the country. So I'll be paying FairTax on $130K/year, which is $39K. So my total withdrawals from my accounts will need to be $229K.

Year	Desired Income	Fixed Income	Shortfall	Savings Beginning Balance	Interest @ 5%	Needed Withdrawals	Ending Balance
1	$229,008	$0	$229,008	$4,000,000	$200,000	($229,008)	$3,970,992
2	229,008	0	229,008	3,970,992	198,550	(229,008)	3,940,534
3	229,008	0	229,008	3,940,534	197,027	(229,008)	3,908,552
4	229,008	0	229,008	3,908,552	195,428	(229,008)	3,874,972
5	229,008	0	229,008	3,874,972	193,749	(229,008)	3,839,712
6	229,008	0	229,008	3,839,712	191,986	(229,008)	3,802,690
7	229,008	0	229,008	3,802,690	190,135	(229,008)	3,763,817
8	229,008	0	229,008	3,763,817	188,191	(229,008)	3,722,999
9	229,008	0	229,008	3,722,999	186,150	(229,008)	3,680,141
10	229,008	0	229,008	3,680,141	184,007	(229,008)	3,635,140
11	229,008	0	229,008	3,635,140	181,757	(229,008)	3,587,890
12	229,008	0	229,008	3,587,890	179,394	(229,008)	3,538,276
13	229,008	0	229,008	3,538,276	176,914	(229,008)	3,486,182
14	229,008	0	229,008	3,486,182	174,309	(229,008)	3,431,483
15	229,008	0	229,008	3,431,483	171,574	(229,008)	3,374,049
16	229,008	0	229,008	3,374,049	168,702	(229,008)	3,313,743
17	229,008	0	229,008	3,313,743	165,687	(229,008)	3,250,423
18	229,008	0	229,008	3,250,423	162,521	(229,008)	3,183,936
19	229,008	0	229,008	3,183,936	159,197	(229,008)	3,114,125
20	229,008	0	229,008	3,114,125	155,706	(229,008)	3,040,823
21	229,008	0	229,008	3,040,823	152,041	(229,008)	2,963,856
22	229,008	0	229,008	2,963,856	148,193	(229,008)	2,883,041
23	229,008	0	229,008	2,883,041	144,152	(229,008)	2,798,185
24	229,008	0	229,008	2,798,185	139,909	(229,008)	2,709,086
25	229,008	0	229,008	2,709,086	135,454	(229,008)	2,615,532
26	229,008	0	229,008	2,615,532	130,777	(229,008)	2,517,301
27	229,008	0	229,008	2,517,301	125,865	(229,008)	2,414,158
28	229,008	0	229,008	2,414,158	120,708	(229,008)	2,305,858
29	229,008	0	229,008	2,305,858	115,293	(229,008)	2,192,143
30	229,008	0	229,008	2,192,143	109,607	(229,008)	2,072,742

The calculator I'm using only goes out to 30 years, but you can see I have over $2M still in my account. So let's plug that in and see how long it lasts.

Year	Desired Income	Fixed Income	Shortfall	Savings Beginning Balance	Interest @ 5%	Needed Withdrawals	Ending Balance
1	$229,008	$0	$229,008	$2,072,742	$103,637	($229,008)	$1,947,371
2	229,008	0	229,008	1,947,371	97,369	(229,008)	1,815,732
3	229,008	0	229,008	1,815,732	90,787	(229,008)	1,677,510
4	229,008	0	229,008	1,677,510	83,876	(229,008)	1,532,378
5	229,008	0	229,008	1,532,378	76,619	(229,008)	1,379,989
6	229,008	0	229,008	1,379,989	68,999	(229,008)	1,219,980
7	229,008	0	229,008	1,219,980	60,999	(229,008)	1,051,971
8	229,008	0	229,008	1,051,971	52,599	(229,008)	875,562
9	229,008	0	229,008	875,562	43,778	(229,008)	690,332
10	229,008	0	229,008	690,332	34,517	(229,008)	495,840
11	229,008	0	229,008	495,840	24,792	(229,008)	291,624
12	229,008	0	229,008	291,624	14,581	(229,008)	77,198
13	229,008	0	229,008	77,198	3,860	(81,057)	0

So it looks like I make it another 12 years -- to age 97 rather than the 95 under the existing tax system. I didn't need to have any price drop at all, but I still came out slightly ahead under the FairTax.