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Old 04-18-2013, 09:18 AM   #21
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What do you think is a good number to use in estimating tax burden in retirement? I hear repeatedly that taxes go down significantly with retirement. I think I have a good idea of our spending of after tax money as far as one can estimate such things, but when using any calculation of SWR you have to estimate the PRE tax amount of money. SO what is a fair number to use? Feel free to give ranges, as in --If your expenses are between $XX and $YY USE z% and use w% if some other range, etc.
I've burned off most of our after-tax savings, so our remaining income will come from a DB pension, IRA withdrawals, and Social Security.

The first two are taxed as ordinary income. For planning purposes, I assume that 85% of SS will be taxed as ordinary income.

So I just fill out a sample, very simple, 1040 with my planned income, and read the dollar amount of taxes from the tax tables. I can also get my marginal tax rate that way, if I have any use for it.

Early in retirement I was in a 15% bracket, I could see from the above that I was likely to get into a 25% bracket eventually, so I did some Roth conversions. But I didn't get a lot of money moved, so the Roth isn't in my plan.
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Old 04-18-2013, 09:20 AM   #22
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A while ago, a colleague of mine sent me a link to a retirement planning engine. The default tax rate was 28%, so I have kept this number in my excel file since then. Happy to read that the rate when I retire may not be as high.
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You might want to explain further for the OP, that implies a stratospheric annual income/spending level. That's higher than the infamous rich "1%" - and more than Warren Buffett's widely publicized effective FIT rate! Almost no individual pays that much in FIT.

And I thought you were living on a relatively modest annual spending by choice?
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Old 04-18-2013, 09:35 AM   #23
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A while ago, a colleague of mine sent me a link to a retirement planning engine. The default tax rate was 28%...
Probably designed by the same folks who say you'll need 80% of your working income in retirement - so you better keep paying our high fees and investing with us or you'll be living in a cardboard box when you're forced to retire at age 75...
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Old 04-18-2013, 09:50 AM   #24
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Yes I am. Sorry for any confusion.

As mentioned in the past, my posts tend to be short because of lack of time and interruptions, but have always been truthful.

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And I thought you were living on a relatively modest annual spending by choice?
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Old 04-18-2013, 09:52 AM   #25
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I would take last year's return and adjust it as needed. Take out wages, etc

In my case I went from 15% to 0% since most of my income is now qualified dividends.
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Old 04-18-2013, 08:25 PM   #26
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As I recall. Obgyn65 is getting $$$ from Cd and other interest vehicles which would tax the Gains at higher ordinary income rates, but still much of the money from a CD for example is return of principle and not subject to taxation.
I am torn between overestimating the tax rate and counting on a pleasant surprise, vs accurately determining as best I can what it would be. I made a best guess estimate using the Turbo Taxcaster--based on our dividends from last year and then adding some cap gains minus the many many capital losses we have to offset those gains, plus another $3000 from the trad IRA which could also be offset by cap losses from the past and came to pay ZERO...ZIP...!! Nothing really ? It seems correct. now eventually I will not have the cap losses but for the first few years I will have cap losses enough to Eliminate any income above our dividends from cap gains
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Old 04-18-2013, 09:46 PM   #27
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Don't forget about state taxes, depending on where you live. But yeah, your fed could surely be 0.

You might also look at converting part of your tIRA to a Roth to push your income up to the 10 or 15% top (include dividends if going up to 15%), if you think that once you hit RMDs, social security, and possibly a pension if you think that you'll be paying more tax later.
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Old 04-18-2013, 10:15 PM   #28
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Don't forget about state taxes, depending on where you live. But yeah, your fed could surely be 0.
Good point on considering state taxes. When I was running simulations for Roth conversions, my spreadsheet had an error (hehe) where I had left out state taxes. What I discovered from my error, though, was all the finagling with traditional to Roth conversion was a drop in the bucket compared with getting the heck into a state that doesn't hit me so hard on the income tax side of things.
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Old 04-19-2013, 08:35 AM   #29
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Don't forget about state taxes, depending on where you live. But yeah, your fed could surely be 0.
+2. In 2012 for the first time in my life, our state income taxes were more than our federal income taxes, makes no sense to me.
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Old 04-19-2013, 09:32 AM   #30
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Pretty much all of our retirement income will be taxed as ordinary income, since it's from pensions & TSP withdrawals. We have small Roth IRA's but not enough to factor, since we won't be withdrawing regularly. We're firmly in 15% territory, I think. Not sure about Louisiana state tax. Neither of my pensions are subject to state taxes, but the TSP withdrawals will be. 90 80% of income will be from pensions.
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Old 04-19-2013, 09:38 AM   #31
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I use this calculator to estimate my future fed/state taxes (I'm still working) - Income Tax Calculator - Tax-Rates.org
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Old 04-19-2013, 02:27 PM   #32
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+2. In 2012 for the first time in my life, our state income taxes were more than our federal income taxes, makes no sense to me.
Since I ERed in late 2008, my (New York) state income taxes have been pretty close to my federal income taxes. In 2011 the state income taxes were only $129 lower than the federal income taxes. In 2012 that gap widened a little because NY cut its income tax rates slightly.

I have wondered why the gap is so small. One reason is that I am in the 0% federal bracket for Qualified Dividends and LT Cap Gains while they are taxed as ordinary income in NY. I also have some investments in national muni bund funds which are tax-free at the federal level but mostly taxable at the state level.

The federal personal exemption and standard deduction (if I don't itemize) rise a little bit each year due to indexing. But they are not indexed at the state level. The combined PE and SD are higher at the federal level than they are at the state level (and in NY, you can't include yourself as a PE).

On the flip side, the relatively small NYS school tax rebate is taxable at the federal level if I itemize although it appears my days of itemizing on the federal level may be over for a while.
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Old 04-19-2013, 02:38 PM   #33
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I plan to use Roth and savings to manage my income within the 15% marginal tax rate. That will give me an approx fed tax rate of <5%. I am amazed at how many people confuse marginal tax rate with what they actually pay.
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Old 04-19-2013, 04:56 PM   #34
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I use this calculator to estimate my future fed/state taxes (I'm still working) - Income Tax Calculator - Tax-Rates.org
Nice find from Frostbite Falls! I dropped $10 into their PayPal without even trying to use the site.

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Old 04-19-2013, 06:23 PM   #35
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I plan to use Roth and savings to manage my income within the 15% marginal tax rate. That will give me an approx fed tax rate of <5%. I am amazed at how many people confuse marginal tax rate with what they actually pay.
You have noticed this in posts on this board? People seem very sophisticated about taxes here. Most of my friends fall into one of four categories- they have low incomes and no financial sophistication, they have good pensions and not much other money and they have very simple taxes, or they have investments and they are are clever about taxes, or if they are making a lot of money they use a CPA and do what he advises them to do. I don't know anyone who would talk about taxes who does not understand the marginal rate is not the overall rate.

It does sometimes serve demagogues to try to obscure these differences.

Ha
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Old 04-19-2013, 08:50 PM   #36
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You have noticed this in posts on this board? People seem very sophisticated about taxes here. Most of my friends fall into one of four categories- they have low incomes and no financial sophistication, they have good pensions and not much other money and they have very simple taxes, or they have investments and they are are clever about taxes, or if they are making a lot of money they use a CPA and do what he advises them to do. I don't know anyone who would talk about taxes who does not understand the marginal rate is not the overall rate.

It does sometimes serve demagogues to try to obscure these differences.

Ha
The media demagogues this all the time. The latest victim was President Obama (no politics in this statement) whose effective rate was about 18% on somewhere around 600k. But he also gave around a fourth or fifth of his gross to charity, which obviously will draw the effective rate down. If you asked my friends the difference between marginal tax rate and effective tax rate, their first spoken words would be "what do the words mean." I would imagine the public in general is about at that level, so they can be confused by it easily.
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Old 04-19-2013, 09:12 PM   #37
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+2. In 2012 for the first time in my life, our state income taxes were more than our federal income taxes, makes no sense to me.
+1 because LTCG were zero for Fed but not for state
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Old 04-20-2013, 06:22 AM   #38
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OP - I checked the 2012 tax tables for federal, state and local, to determine the base tax for my anticipated taxable income: then worked out the percentage ( tax amount divided by taxable income). Came out to about 17.8% . Rounded up to 20% for budgeting purposes.
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Old 04-20-2013, 06:43 AM   #39
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+1 because LTCG were zero for Fed but not for state
+2. Because deductibles are counted on the federal but not the states. Same ting for 401(K) and IRA distributions - included on federal but not the states (Illinois).
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Old 04-20-2013, 07:04 AM   #40
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You have noticed this in posts on this board? People seem very sophisticated about taxes here. Most of my friends fall into one of four categories- they have low incomes and no financial sophistication, they have good pensions and not much other money and they have very simple taxes, or they have investments and they are are clever about taxes, or if they are making a lot of money they use a CPA and do what he advises them to do. I don't know anyone who would talk about taxes who does not understand the marginal rate is not the overall rate.

It does sometimes serve demagogues to try to obscure these differences.

Ha
Not so much on this forum. Of course the posters here represent a minority in many different respects.
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