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Wife pension

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  • Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 490
    Joined: 08/30/2018

    “Just to be contrarian, I dislike when people say this about the lesser earning spouse…Every bit that is brought into the household counts.”

    Except for when it costs more to bring in that little bit than that little bit is worth. It’s not an indictment of the other spouse, it’s simply a reality of our tax code.

    The lesser earning spouses marginal income comes at the 35% federal bracket plus 5.1% taxachusetts, plus 1.45% Medicare (Mass school employees are SS exception), plus 0.9% Obamacare tax – so 42.45% marginal rate on her 1st dollar (whereas a single earner would pay only 6.55 % marginal on their first dollar…as the standard deduction would make the first 12.2k fed tax free — a 36% marginal difference on the first dollar)

    Take home (ignoring pension deductions, etc.) ends up being just under 29k. If earning that 29k after tax necessitates childcare which otherwise wouldn’t be needed, or any other work related expenses that wouldn’t otherwise be incurred, the net benefit heads to 0 pretty quickly — the lower earning spouse is quite literally not working for the money, because on net, they aren’t earning any money.

    At some point, adding in the responsibilities and hassles of a job, the challenges of vacation coordination, and missing out on time together exceed the value of the marginal net income of a low earning spouse.

    The lack of doubling of the tax brackets from single to married (top marginal singles rates starts at $510k, MFJ isn’t twice that, it’s only $612k) is a huge disincentive to work for low earning spouses married to high earners. That takes lots of smart, qualified people who could provide valuable contributions out of the workforce, and society loses.

    Click to expand…

    This view misses the other important point Anne made: “Making your spouse feel that their contribution doesn’t matter is not going to help your marriage.” As my youngest reached high school my wife wanted to go back to work part time. It was far more about making a contribution than the amount she added to the bottom line. As it happens, we are able to tax defer most all of her income. That said, there is no doubt in my mind that her work is as important to her as mine is to me.

    #214417 Reply
    Liked by Tim
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 793
    Joined: 02/11/2019

    “Just to be contrarian, I dislike when people say this about the lesser earning spouse…Every bit that is brought into the household counts.”

    Except for when it costs more to bring in that little bit than that little bit is worth. It’s not an indictment of the other spouse, it’s simply a reality of our tax code.

    The lesser earning spouses marginal income comes at the 35% federal bracket plus 5.1% taxachusetts, plus 1.45% Medicare (Mass school employees are SS exception), plus 0.9% Obamacare tax – so 42.45% marginal rate on her 1st dollar (whereas a single earner would pay only 6.55 % marginal on their first dollar…as the standard deduction would make the first 12.2k fed tax free — a 36% marginal difference on the first dollar)

    Take home (ignoring pension deductions, etc.) ends up being just under 29k. If earning that 29k after tax necessitates childcare which otherwise wouldn’t be needed, or any other work related expenses that wouldn’t otherwise be incurred, the net benefit heads to 0 pretty quickly — the lower earning spouse is quite literally not working for the money, because on net, they aren’t earning any money.

    At some point, adding in the responsibilities and hassles of a job, the challenges of vacation coordination, and missing out on time together exceed the value of the marginal net income of a low earning spouse.

    The lack of doubling of the tax brackets from single to married (top marginal singles rates starts at $510k, MFJ isn’t twice that, it’s only $612k) is a huge disincentive to work for low earning spouses married to high earners. That takes lots of smart, qualified people who could provide valuable contributions out of the workforce, and society loses.

    Click to expand…

    This view misses the other important point Anne made: “Making your spouse feel that their contribution doesn’t matter is not going to help your marriage.” As my youngest reached high school my wife wanted to go back to work part time. It was far more about making a contribution than the amount she added to the bottom line. As it happens, we are able to tax defer most all of her income. That said, there is no doubt in my mind that her work is as important to her as mine is to me.

    Click to expand…

    I agree.  Most people work for the money but there are other benefits.  We are in a situation where with my wife working we either just break even or maybe lose a little.  4 kids in daycare is expensive.   However my wife likes her career and in a few years when the kids get to school age and she goes back to full time work it will swing back into our favor.  Not to mention all the psychological benefits of working, feeling productive, adult time, etc.  If you can use more tax deferred space all the better!

    “Never let your sense of morals prevent you from doing what is right.”

    #214422 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 426
    Joined: 06/18/2018

    @lordosis

    “Together we make in the low to mid 300K range.  MArginal tax rate 24 fed and 6.8 state.” -Lordosis 2/24/19

    Now put yourself in the shoes of a high earner, where your individual income alone put you in the 37% bracket, such that your wife took a 13% pay cut (37% fed rate vs your current 24%) to do the same work. Would that change your calculus? It may not, but while you and your wife may choose for her to work at a net loss (personal finance is personal), you’ve gotta admit that most people will choose to not work at a net loss. The fact is, the current tax brackets highly disincentivize working for low earning spouses of high-earners. On the margin, society loses out on the contributions of many talented and capable workers.

     

    @larry

    “This view misses the other important point Anne made: “Making your spouse feel that their contribution doesn’t matter is not going to help your marriage.”

    Which misses the point that it’s not about feelings, it’s about math. Knowing that math is actually liberating and marriage improving for many. Most people don’t love work, they go to work to earn money to pay for things. I know plenty of couples that, when they did that math, they learned that the low earning spouse (say 700k and 60k, or 1M and 85k) was tolerating the hassles of work, travelling away from family, and missing out on life events for a net of a few measly bucks an hour (or, in some cases, a loss net of child care or other expenses which wouldn’t be incurred if they weren’t working). As such, they were able to actualize their preference of not working without bearing any guilt that quitting would negatively impact family finances — because they understood that their net financial contribution from working was trivial, freeing them to do things they actually wanted to do and contribute in more meaningful ways.

     

    To the OP…make the pension contribution. If she works long enough to qualify (10 years) it’ll almost certainly be worth it. If she doesn’t, you get the contributions back plus 3% interest (which accumulated on effectively tax deferred money, which is effectively 5.5% at your tax bracket, which isn’t bad for a guaranteed return).

     

     

    #214432 Reply
    jsr52 jsr52 
    Participant
    Status: Physician
    Posts: 165
    Joined: 03/20/2017

    This is how I read it as well. Thanks this all makes more sense now

    #214433 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 793
    Joined: 02/11/2019

    @lordosis

    “Together we make in the low to mid 300K range.  MArginal tax rate 24 fed and 6.8 state.” -Lordosis 2/24/19

    Now put yourself in the shoes of a high earner, where your individual income alone put you in the 37% bracket, such that your wife took a 13% pay cut (37% fed rate vs your current 24%) to do the same work. Would that change your calculus? It may not, but while you and your wife may choose for her to work at a net loss (personal finance is personal), you’ve gotta admit that most people will choose to not work at a net loss. The fact is, the current tax brackets highly disincentivize working for low earning spouses of high-earners. On the margin, society loses out on the contributions of many talented and capable workers.

     

    @larry

    “This view misses the other important point Anne made: “Making your spouse feel that their contribution doesn’t matter is not going to help your marriage.”

    Which misses the point that it’s not about feelings, it’s about math. Knowing that math is actually liberating and marriage improving for many. Most people don’t love work, they go to work to earn money to pay for things. I know plenty of couples that, when they did that math, they learned that the low earning spouse (say 700k and 60k, or 1M and 85k) was tolerating the hassles of work, travelling away from family, and missing out on life events for a net of a few measly bucks an hour (or, in some cases, a loss net of child care or other expenses which wouldn’t be incurred if they weren’t working). As such, they were able to actualize their preference of not working without bearing any guilt that quitting would negatively impact family finances — because they understood that their net financial contribution from working was trivial, freeing them to do things they actually wanted to do and contribute in more meaningful ways.

     

    To the OP…make the pension contribution. If she works long enough to qualify (10 years) it’ll almost certainly be worth it. If she doesn’t, you get the contributions back plus 3% interest (which accumulated on effectively tax deferred money, which is effectively 5.5% at your tax bracket, which isn’t bad for a guaranteed return).

     

     

    Click to expand…

    Oh I absolutely agree.  This is a luxury we are funding right now.  We make sacrifices elsewhere to make it work.  It is important to her so it is important to me and the family.  I also think that daycare has some advantages with socialization and education and just a variety to the day.  If my wife stayed home more with the kids she would have to find things to do with them that would cost something.

    But I agree it is a very personal situation and one size does not fit all.  Just our experience of some of the non monetary benefits of working.

    “Never let your sense of morals prevent you from doing what is right.”

    #214470 Reply

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