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Basic Firecalc question
Old 07-17-2007, 08:51 AM   #1
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Basic Firecalc question

Very basic that is. It is my understanding that Firecalc disregards income taxes from its calculations. (Go figure) Therefore, do you add in income taxes to your "Annual Spending"?
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Old 07-17-2007, 09:05 AM   #2
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Very basic answer: Yes
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Old 07-17-2007, 09:22 AM   #3
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Hog, income tax is so complex and different from user to user that FC really can't factor that in as a general tool. Not to mention that fact that IRA withdrawals are subject to income tax as ordinary income, while personal after-tax savings is not. No way FC can know this.

Basically, when you put in how much you need from your nest egg, use your gross (pre-tax) amount for your expenses. You'd estimate that based on your income level, deduction status, etc. as you normally would. Plus, you don't need to "gross up" your personal after-tax savings withdrawals.

So if you need to spend $50k a year in retirement, and you need to "earn/withdraw" $60k to leave $50k after taxes, your income need is $60k for FC purposes.
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Old 07-17-2007, 10:04 AM   #4
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Well, I know what my expenses are because I'm a religious user of Quicken. The way I estimate my retiremen income needs will be those expenses times 1.14 since I estimate my taxes to be 14% of income. I just seems that a lot of folks on this board swear by Firecalc and since income taxes are such a huge factor in retirement planning I was trying to understand the confidence level people have with the calculator.
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Old 07-17-2007, 10:28 AM   #5
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Quote:
Originally Posted by hogwild View Post
Well, I know what my expenses are because I'm a religious user of Quicken. The way I estimate my retiremen income needs will be those expenses times 1.14 since I estimate my taxes to be 14% of income. I just seems that a lot of folks on this board swear by Firecalc and since income taxes are such a huge factor in retirement planning I was trying to understand the confidence level people have with the calculator.
I do something similar to what you are proposing. I'm retired, living almost entirely off IRA withdrawals. I know I need X dollars for annual expenses, so I withdraw X+Y dollars from my IRAs each year, the Y being the amount I pay in income taxes.

The amount I plug into FIRECalc for my annual expense number is X+Y, and I have a very high confidence level in the output of the calculator. Time will tell if my confidence was justified.
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