Estimating taxes

[Pellice]

I am trying to figure out at what figure to start my taxes in firecalc. I'm 61, will probably retire somewhere between 63 and 64. I have a financial planner who has set up online reports for me. My taxes start out around $10,000, but I just noticed they drop by almost half after I turn 65, then start increasing. I'm going to ask him why, but I suspect it is the turning 65. Anyway, when running firecalc, which figure should I use? I'm guessing it's the lower figure, because that is where the 30 year slow increase will begin.

BTW, today is the first time I've achieved 100% success in firecalc - although my success rate has been consistently above 95%. Reducing my taxes to the 65 year old rate, and the changeover to 2017 apparently made the difference!

 

[pb4uski]

Pick a number somewhere in the range, perhaps the average, median or mode, and add it to your spending. I would pick something near the "ultimate" amount of tax and not fret about year to year variations given the amount involved.

 

[Sunset]

I looked at fireclac and didn't see where to enter taxes. Seems unnecessary, do you enter Federal taxes and State taxes separately ?
What about Sales tax since some States don't have it ?

Why not just enter the total amount you want to spend per year on everything including taxes. ?

 

[MichaelB]

Taxes are different for everyone, so for FIRECalc you should estimate them and include them in your overall spending number.

 

[marko]

I generally figure my effective Fed tax rate plus my 5.1% flat state tax.

Our income and income source is fairly constant as is our effective rate.

 

[Pellice]

Pick a number somewhere in the range, perhaps the average, median or mode, and add it to your spending. I would pick something near the "ultimate" amount of tax and not fret about year to year variations given the amount involved.

Yes, that's what I thought, which means taxes during the first couple of retirement years, before 65, are abnormally high, then at 65 the steadier "real" amount takes hold.

 

[retire@40]

To estimate your effective tax rate, do a mock return based on your estimated income and deductions at retirement.

 

[W2R]

Just don't do estimate your taxes the way I estimated mine, before I retired.

I had read posts by many people here saying their taxes in retirement were about 10% of their income. That sounded just TOO good. I thought surely that was a lot of baloney and didn't believe it for an instant. So, as a placeholder, I estimated my taxes at 25%.

(Dumb, dumb, dumb. I should have run Turbotax with as realistic of a retirement scenario as I could figure out, to do better job of estimating than I did.)

In retirement, it turned out that my taxes were about 9%-10% of my income. Oh well, it has been nice to have a lot of wiggle room in my budget.

 

[pb4uski]

Did you work longer than you needed to as a result of that flawed tax assumption? Even if you didn't I can see it happening to those who are not careful about it and need to get to a certain multiple of living expenses before retiring.

 

[W2R]

Did you work longer than you needed to as a result of that flawed tax assumption? Even if you didn't I can see it happening to those who are not careful about it and need to get to a certain multiple of living expenses before retiring.

No, i had to work two years past when I otherwise would have retired, to qualify for retiree health coverage. No ACA back then, in 2009. So, my retirement date was already set in stone, as far as I was concerned. Oh well, more money has been nice too.