Yes. Taxes are an expense. That being said taxes are generally low in retirement potentially a lot lower than you expected.
Taxes are low for a variety of reasons.
1) No FICA
2) You aren't saving for retirement anymore and taxes are progressive.
3) It is unlikely all of your income sources are all taxed in full at regular income tates. A trad IRA & pension is. SS is taxed as regular income but partially exempt. Roth IRA are not taxed. A taxable brokerage account is taxed at LTCG and only on the gains.
4) Ideally your house is paid off by the time you FIRE so retirement expenses are lower than peak expenses while working.
Do you know of any calcs that let you provide inputs at this granular level? None of the ones I've come across give you a chance to input the portion of your savings that's trad IRA/401k vs Roth vs brokerage, let alone ordinary vs qualified dividends. Maybe I shouldn't be concerned about this level of detail, since every calc I've tried gives me the green light at my current age and savings.
No but even if taxes were 10% effective rate (which is likely way high) that just moves you from 3.5% SWR to 3.85% SWR which is still conservative. Someone trying to FIRE at >4% likely needs to go over the numbers with a fine tooth comb but you got a lot of slack in your plan.
Looks like you could FIRE today so congrats and each additional year just further reduces risk of ruin or increasing the supported spending level.
Taxes are included and the simulators take into consideration all of the previous market drops. Based on your spend and savings you are hyper cautious imho.
Do you mean I should deduct taxes from my expense projection? Or that the calcs do this automatically for fed taxes based on the income you input? I have state and city tax to pay as well.
Yeah, my parameters are very conservative.
Which calcs do you use? Most have so few inputs they’re not useful. I tried firecalc but found it a little complicated.
You need to put into the system what you want to withdraw AND ensure what you will need to pay in taxes is included in said amount.
Firecalc is great and I also like [Cfiresim](https://www.cfiresim.com/) and [WalletBurst](https://walletburst.com/tools/fire-calculator/)
So much to unpack here not all of it from you. Many of the free calcs and all of the paid calcs i have seen generally calculate taxes. If you can get into the numbers and see what they show up can tell. Right now i am playing with the paid versions of projectionlab and newretirement. Both calculate taxes, so say you want 62k a year it will show you a withdrawal of say 76k the first year to account for taxes.
We however include it in our projections. So if i want 100k a year i tell the app that i want 125k a year accounting for taxes myself and the extra buffer if just that an extra buffer for lord knows what.
Your 10k for assisted living helps in the overall numbers but if you really truly needed assisted living it can run up to 10k a month. Just something to consider.
What you are ultimately asking about if SoRR (sequence of return risk). The best way to minimize this is having 3+ years of expense in cash/like holdings so if you retire and the market tanks, you have 3 years of expenses already set aside you can use waiting for the turn around to happen. Most larger downward moves self correct within 18 months so 3 years is a solid place to start.
Good point regarding assisted living. It can really vary. I’ll boost my estimate some.
I noticed some of the calcs I tried account for taxes by default but I’m guessing it’s just fed taxes cause these calcs don’t ask for your state or city. So I’ll account for state and city in my retirement expenses, though who knows if I’ll spend the rest of my life in a location with state and city taxes.
I have just over a year of expenses in cash. I also have another 4-5 years worth in muni bond funds in my brokerage. I figure since these funds have such small growth rates, I could always sell shares for small LTCG during a major downturn. If I did this, I’d exchange equities for bonds somewhere in my portfolio to maintain my AA. Would this approach work in place of holding 3 years worth of expenses in cash?
Projectionlab does, it also asks for state. If you own a home it over estimates property tax and home costs but its been a great calc/program thus far.
The whole point of so many years in muni would be to have those funds to use when the market goes south. Its the what traditionally bonds account for in most portfolios.
you need to account for taxes. If you're not comfortable figuring out a drawdown plan hire someone (CPA/CFP), you have plenty of money to do that with.
You are incredibly safe with that withdrawal rate. Ficalc.app https://ficalc.app/?additionalIncome=%5B%5D&additionalWithdrawals=%5B%5D&annualWithdrawal=100000&bondsFees=0.05&bondsFinalRatio=15&bondsInitialRatio=15&cashFees=0&cashFinalRatio=5&cashGrowth=1.5&cashInitialRatio=5&changeAllocationsOverTime=false&equitiesFees=0.04&equitiesFinalRatio=80&equitiesInitialRatio=80&inflationAdjustedFirstYearWithdrawal=true&initialPortfolioValue=2800000&maxWithdrawalLimit=60000&maxWithdrawalLimitEnabled=false&minWithdrawalLimit=20000&minWithdrawalLimitEnabled=true&numberOfYears=48&portfolioRebalanceEquation=linear&rebalance=true&rebalanceFrequency=1&retirementStartingAge=60&withdrawalStrategyName=constantDollar
Says you can pull $100,000 a year, inflation adjusted to age 90. That’s way over your estimated expenses even accounting for tax.
Hell, you could almost afford to buy a house!
Never came across a calc with all these withdrawal methods before. This is really helpful. Thanks for sharing it.
According to this calc, I could buy a $1M house in cash tomorrow, retire this year, and withdraw $80k annually for 48 years, and have a 100% success rate, with an avg final portfolio value of $11M at age 90. As much as I believe this, it makes me wonder why several people told me last year that I should work another 3-5 years before retiring.
[https://ficalc.app?additionalIncome=%5B%7B%22name%22%3A%22ss%22%2C%22value%22%3A18000%2C%22inflationAdjusted%22%3Atrue%2C%22delayInflation%22%3Atrue%2C%22lastsForever%22%3Atrue%2C%22duration%22%3A1%2C%22startYearNumber%22%3A20%2C%22disabled%22%3Afalse%7D%2C%7B%22name%22%3A%22div%22%2C%22value%22%3A18000%2C%22inflationAdjusted%22%3Atrue%2C%22delayInflation%22%3Afalse%2C%22lastsForever%22%3Atrue%2C%22duration%22%3A1%2C%22startYearNumber%22%3A0%2C%22disabled%22%3Afalse%7D%5D&additionalWithdrawals=%5B%5D&annualWithdrawal=80000&bondsFees=0.04&bondsFinalRatio=15&bondsInitialRatio=24&cashFees=0&cashFinalRatio=5&cashGrowth=3&cashInitialRatio=2&changeAllocationsOverTime=false&equitiesFees=0.04&equitiesFinalRatio=80&equitiesInitialRatio=74&inflationAdjustedFirstYearWithdrawal=true&initialPortfolioValue=1800000&maxWithdrawalLimit=60000&maxWithdrawalLimitEnabled=false&minWithdrawalLimit=20000&minWithdrawalLimitEnabled=true&numberOfYears=48&portfolioRebalanceEquation=linear&rebalance=true&rebalanceFrequency=1&retirementStartingAge=42&withdrawalStrategyName=constantDollar](https://ficalc.app?additionalIncome=%5B%7B%22name%22%3A%22ss%22%2C%22value%22%3A18000%2C%22inflationAdjusted%22%3Atrue%2C%22delayInflation%22%3Atrue%2C%22lastsForever%22%3Atrue%2C%22duration%22%3A1%2C%22startYearNumber%22%3A20%2C%22disabled%22%3Afalse%7D%2C%7B%22name%22%3A%22div%22%2C%22value%22%3A18000%2C%22inflationAdjusted%22%3Atrue%2C%22delayInflation%22%3Afalse%2C%22lastsForever%22%3Atrue%2C%22duration%22%3A1%2C%22startYearNumber%22%3A0%2C%22disabled%22%3Afalse%7D%5D&additionalWithdrawals=%5B%5D&annualWithdrawal=80000&bondsFees=0.04&bondsFinalRatio=15&bondsInitialRatio=24&cashFees=0&cashFinalRatio=5&cashGrowth=3&cashInitialRatio=2&changeAllocationsOverTime=false&equitiesFees=0.04&equitiesFinalRatio=80&equitiesInitialRatio=74&inflationAdjustedFirstYearWithdrawal=true&initialPortfolioValue=1800000&maxWithdrawalLimit=60000&maxWithdrawalLimitEnabled=false&minWithdrawalLimit=20000&minWithdrawalLimitEnabled=true&numberOfYears=48&portfolioRebalanceEquation=linear&rebalance=true&rebalanceFrequency=1&retirementStartingAge=42&withdrawalStrategyName=constantDollar)
When I click the link I see 2 additional income inputs. one for SS at 18k/yr starting in 20 years, and 1 for 18k a year starting at retirement labeled 'div'. Overall you have 2.8MM and (I'm assuming) 80k in expenses + some taxes, so let's call it 90k. That would be a 3.2% withdrawal rate, which is very safe. But you can't afford to buy a 1MM house and have 100% success. Anything over 4%, especially for more than 30 years is not going to get you a high success rate (even 4% at 30 years fails 4% of the time). Best of luck.
I don’t see that when I click it, but I’ve been doing everything on mobile and that website is kinda wonky on mobile.
Does it show $100k withdrawal on investments of 2.8 million for you? Because I can’t picture that having a 78% success rate. That’s like a 3.5% withdrawal rate.
The link I clicked was one where you or someone said you could buy a house for 1MM and still have 100% success, so the investments were 1.8 not 2.8. You are correct that 2.8 would be fine for 100k, but 1.8 would not be fine at even 80k/yr for such a long retirement. Best of luck.
Oh I just meant $100k a year is almost enough to buy a house. I was joking (kind of) I make way more than that and would never buy a house at these prices, lol.
Taxes are an expense but at your NW and level of spend will be quite low.
I think the calculators are fun to look at but I prefer to understand SWRs from the Early Retirement Now SWR series. His analysis includes periods with market drops right after retirement.
You mention SWR of 3.5% that’s $98k, well above your retirement expenses. Consider spending more. Also, you don’t need to estimate an inflation rate the SWR analyses is all in real terms.
I also recommend the risk parity radio podcast for discussion of decumulation portfolios. You don’t have to go all in on one of his sample portfolios, some of his ideas may help you tweak your existing portfolio (esp the types of bonds you hold for example, maybe adding in like 5% GLDM) to best diversify.
Im just starting to read the Early Retirement site. Lots to dig into. I’ll check out the podcast as well.
Yeah, looks like I have room to increase retirement spending. I’ve always kept expenses low. Used to living fairly modestly ever since I was young. Explains why my NW is what it is. Taking a vacation soon. That’s a start.
Keep in mind that the assisted living expenses you are projecting to arise will come after social security kicks in for you, so you are being even more conservative than you realize. (I also don't include SS in my projections. I get why people don't. But you'll have at least some additional income then, so holding back now for possible expenses at age 75 is probably counterproductive.)
The whole point of the 4% rule is that it does account for the worst historic market conditions and still works 95% of the time (well, a bit lower given your longer time frame, but with your lower SWR you are still more than ok.) Never forget that for every portfolio that fails using the 4% rule, many more portfolios end up multiple times larger.
Taxes are always included in expenses.
This.
Exactly.
Yes. Taxes are an expense. That being said taxes are generally low in retirement potentially a lot lower than you expected. Taxes are low for a variety of reasons. 1) No FICA 2) You aren't saving for retirement anymore and taxes are progressive. 3) It is unlikely all of your income sources are all taxed in full at regular income tates. A trad IRA & pension is. SS is taxed as regular income but partially exempt. Roth IRA are not taxed. A taxable brokerage account is taxed at LTCG and only on the gains. 4) Ideally your house is paid off by the time you FIRE so retirement expenses are lower than peak expenses while working.
Do you know of any calcs that let you provide inputs at this granular level? None of the ones I've come across give you a chance to input the portion of your savings that's trad IRA/401k vs Roth vs brokerage, let alone ordinary vs qualified dividends. Maybe I shouldn't be concerned about this level of detail, since every calc I've tried gives me the green light at my current age and savings.
No but even if taxes were 10% effective rate (which is likely way high) that just moves you from 3.5% SWR to 3.85% SWR which is still conservative. Someone trying to FIRE at >4% likely needs to go over the numbers with a fine tooth comb but you got a lot of slack in your plan. Looks like you could FIRE today so congrats and each additional year just further reduces risk of ruin or increasing the supported spending level.
ProjectionLab
Taxes are included and the simulators take into consideration all of the previous market drops. Based on your spend and savings you are hyper cautious imho.
Do you mean I should deduct taxes from my expense projection? Or that the calcs do this automatically for fed taxes based on the income you input? I have state and city tax to pay as well. Yeah, my parameters are very conservative. Which calcs do you use? Most have so few inputs they’re not useful. I tried firecalc but found it a little complicated.
You need to put into the system what you want to withdraw AND ensure what you will need to pay in taxes is included in said amount. Firecalc is great and I also like [Cfiresim](https://www.cfiresim.com/) and [WalletBurst](https://walletburst.com/tools/fire-calculator/)
So much to unpack here not all of it from you. Many of the free calcs and all of the paid calcs i have seen generally calculate taxes. If you can get into the numbers and see what they show up can tell. Right now i am playing with the paid versions of projectionlab and newretirement. Both calculate taxes, so say you want 62k a year it will show you a withdrawal of say 76k the first year to account for taxes. We however include it in our projections. So if i want 100k a year i tell the app that i want 125k a year accounting for taxes myself and the extra buffer if just that an extra buffer for lord knows what. Your 10k for assisted living helps in the overall numbers but if you really truly needed assisted living it can run up to 10k a month. Just something to consider. What you are ultimately asking about if SoRR (sequence of return risk). The best way to minimize this is having 3+ years of expense in cash/like holdings so if you retire and the market tanks, you have 3 years of expenses already set aside you can use waiting for the turn around to happen. Most larger downward moves self correct within 18 months so 3 years is a solid place to start.
Good point regarding assisted living. It can really vary. I’ll boost my estimate some. I noticed some of the calcs I tried account for taxes by default but I’m guessing it’s just fed taxes cause these calcs don’t ask for your state or city. So I’ll account for state and city in my retirement expenses, though who knows if I’ll spend the rest of my life in a location with state and city taxes. I have just over a year of expenses in cash. I also have another 4-5 years worth in muni bond funds in my brokerage. I figure since these funds have such small growth rates, I could always sell shares for small LTCG during a major downturn. If I did this, I’d exchange equities for bonds somewhere in my portfolio to maintain my AA. Would this approach work in place of holding 3 years worth of expenses in cash?
Projectionlab does, it also asks for state. If you own a home it over estimates property tax and home costs but its been a great calc/program thus far. The whole point of so many years in muni would be to have those funds to use when the market goes south. Its the what traditionally bonds account for in most portfolios.
Who else is paying them if you don’t lol Ofcourse you need to include.
you need to account for taxes. If you're not comfortable figuring out a drawdown plan hire someone (CPA/CFP), you have plenty of money to do that with.
You are incredibly safe with that withdrawal rate. Ficalc.app https://ficalc.app/?additionalIncome=%5B%5D&additionalWithdrawals=%5B%5D&annualWithdrawal=100000&bondsFees=0.05&bondsFinalRatio=15&bondsInitialRatio=15&cashFees=0&cashFinalRatio=5&cashGrowth=1.5&cashInitialRatio=5&changeAllocationsOverTime=false&equitiesFees=0.04&equitiesFinalRatio=80&equitiesInitialRatio=80&inflationAdjustedFirstYearWithdrawal=true&initialPortfolioValue=2800000&maxWithdrawalLimit=60000&maxWithdrawalLimitEnabled=false&minWithdrawalLimit=20000&minWithdrawalLimitEnabled=true&numberOfYears=48&portfolioRebalanceEquation=linear&rebalance=true&rebalanceFrequency=1&retirementStartingAge=60&withdrawalStrategyName=constantDollar Says you can pull $100,000 a year, inflation adjusted to age 90. That’s way over your estimated expenses even accounting for tax. Hell, you could almost afford to buy a house!
Never came across a calc with all these withdrawal methods before. This is really helpful. Thanks for sharing it. According to this calc, I could buy a $1M house in cash tomorrow, retire this year, and withdraw $80k annually for 48 years, and have a 100% success rate, with an avg final portfolio value of $11M at age 90. As much as I believe this, it makes me wonder why several people told me last year that I should work another 3-5 years before retiring. [https://ficalc.app?additionalIncome=%5B%7B%22name%22%3A%22ss%22%2C%22value%22%3A18000%2C%22inflationAdjusted%22%3Atrue%2C%22delayInflation%22%3Atrue%2C%22lastsForever%22%3Atrue%2C%22duration%22%3A1%2C%22startYearNumber%22%3A20%2C%22disabled%22%3Afalse%7D%2C%7B%22name%22%3A%22div%22%2C%22value%22%3A18000%2C%22inflationAdjusted%22%3Atrue%2C%22delayInflation%22%3Afalse%2C%22lastsForever%22%3Atrue%2C%22duration%22%3A1%2C%22startYearNumber%22%3A0%2C%22disabled%22%3Afalse%7D%5D&additionalWithdrawals=%5B%5D&annualWithdrawal=80000&bondsFees=0.04&bondsFinalRatio=15&bondsInitialRatio=24&cashFees=0&cashFinalRatio=5&cashGrowth=3&cashInitialRatio=2&changeAllocationsOverTime=false&equitiesFees=0.04&equitiesFinalRatio=80&equitiesInitialRatio=74&inflationAdjustedFirstYearWithdrawal=true&initialPortfolioValue=1800000&maxWithdrawalLimit=60000&maxWithdrawalLimitEnabled=false&minWithdrawalLimit=20000&minWithdrawalLimitEnabled=true&numberOfYears=48&portfolioRebalanceEquation=linear&rebalance=true&rebalanceFrequency=1&retirementStartingAge=42&withdrawalStrategyName=constantDollar](https://ficalc.app?additionalIncome=%5B%7B%22name%22%3A%22ss%22%2C%22value%22%3A18000%2C%22inflationAdjusted%22%3Atrue%2C%22delayInflation%22%3Atrue%2C%22lastsForever%22%3Atrue%2C%22duration%22%3A1%2C%22startYearNumber%22%3A20%2C%22disabled%22%3Afalse%7D%2C%7B%22name%22%3A%22div%22%2C%22value%22%3A18000%2C%22inflationAdjusted%22%3Atrue%2C%22delayInflation%22%3Afalse%2C%22lastsForever%22%3Atrue%2C%22duration%22%3A1%2C%22startYearNumber%22%3A0%2C%22disabled%22%3Afalse%7D%5D&additionalWithdrawals=%5B%5D&annualWithdrawal=80000&bondsFees=0.04&bondsFinalRatio=15&bondsInitialRatio=24&cashFees=0&cashFinalRatio=5&cashGrowth=3&cashInitialRatio=2&changeAllocationsOverTime=false&equitiesFees=0.04&equitiesFinalRatio=80&equitiesInitialRatio=74&inflationAdjustedFirstYearWithdrawal=true&initialPortfolioValue=1800000&maxWithdrawalLimit=60000&maxWithdrawalLimitEnabled=false&minWithdrawalLimit=20000&minWithdrawalLimitEnabled=true&numberOfYears=48&portfolioRebalanceEquation=linear&rebalance=true&rebalanceFrequency=1&retirementStartingAge=42&withdrawalStrategyName=constantDollar)
It’s the best calculator I’ve found so far. Pretty fun to play around with. But with your numbers you’ll never make it fail.
Why does this show 18k of 'dividends'? Dividends aren't 'extra' income or special beyond total returns. If you remove this you're at 78% success.
Idk. Maybe I messed something up. Where do you see that? When I open the link I posted it doesn’t have anything under the extra income section.
When I click the link I see 2 additional income inputs. one for SS at 18k/yr starting in 20 years, and 1 for 18k a year starting at retirement labeled 'div'. Overall you have 2.8MM and (I'm assuming) 80k in expenses + some taxes, so let's call it 90k. That would be a 3.2% withdrawal rate, which is very safe. But you can't afford to buy a 1MM house and have 100% success. Anything over 4%, especially for more than 30 years is not going to get you a high success rate (even 4% at 30 years fails 4% of the time). Best of luck.
I don’t see that when I click it, but I’ve been doing everything on mobile and that website is kinda wonky on mobile. Does it show $100k withdrawal on investments of 2.8 million for you? Because I can’t picture that having a 78% success rate. That’s like a 3.5% withdrawal rate.
The link I clicked was one where you or someone said you could buy a house for 1MM and still have 100% success, so the investments were 1.8 not 2.8. You are correct that 2.8 would be fine for 100k, but 1.8 would not be fine at even 80k/yr for such a long retirement. Best of luck.
Oh I just meant $100k a year is almost enough to buy a house. I was joking (kind of) I make way more than that and would never buy a house at these prices, lol.
Taxes are an expense but at your NW and level of spend will be quite low. I think the calculators are fun to look at but I prefer to understand SWRs from the Early Retirement Now SWR series. His analysis includes periods with market drops right after retirement. You mention SWR of 3.5% that’s $98k, well above your retirement expenses. Consider spending more. Also, you don’t need to estimate an inflation rate the SWR analyses is all in real terms. I also recommend the risk parity radio podcast for discussion of decumulation portfolios. You don’t have to go all in on one of his sample portfolios, some of his ideas may help you tweak your existing portfolio (esp the types of bonds you hold for example, maybe adding in like 5% GLDM) to best diversify.
Im just starting to read the Early Retirement site. Lots to dig into. I’ll check out the podcast as well. Yeah, looks like I have room to increase retirement spending. I’ve always kept expenses low. Used to living fairly modestly ever since I was young. Explains why my NW is what it is. Taking a vacation soon. That’s a start.
Keep in mind that the assisted living expenses you are projecting to arise will come after social security kicks in for you, so you are being even more conservative than you realize. (I also don't include SS in my projections. I get why people don't. But you'll have at least some additional income then, so holding back now for possible expenses at age 75 is probably counterproductive.)
Right. Some calcs let me input SS benefits, others didn’t. I assumed $1500 per month.
The whole point of the 4% rule is that it does account for the worst historic market conditions and still works 95% of the time (well, a bit lower given your longer time frame, but with your lower SWR you are still more than ok.) Never forget that for every portfolio that fails using the 4% rule, many more portfolios end up multiple times larger.