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FireCalc question
Old 10-29-2018, 09:32 AM   #1
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FireCalc question

Am I correct that there is no way to differentiate between aftertax and pretax funds within FireCalc? Or am I missing something?
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Old 10-29-2018, 09:33 AM   #2
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You are correct.
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Old 10-29-2018, 09:58 AM   #3
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Thx for confirmation. A little unfortunate you can't segregate funds to get better picture (given tax implications).
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Old 10-29-2018, 10:41 AM   #4
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I use tax software to estimate my annual taxes and include that amount as part of my annual expenses. That negates the need to segregate your funds into pre or post tax categories.
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Old 10-29-2018, 02:42 PM   #5
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Yes, tax software could be used to arrive at the estimated taxes which then get added as an expense to Firecalc, thus to some extent equalizing the investment returns of the deferred vs. non tax deferred.
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Old 10-30-2018, 09:10 AM   #6
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Just checked Fidelity calculator and it does allow for tax deferred accounts. I assume (as I have yet to delve into the details) that they must apply RMD/taxes in their calculations...
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Old 10-30-2018, 10:15 AM   #7
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Just checked Fidelity calculator and it does allow for tax deferred accounts. I assume (as I have yet to delve into the details) that they must apply RMD/taxes in their calculations...
The Fidelity calculator does show a separate column for RMD withdrawals. There is also a separate section where you input various tax rates.
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Old 10-30-2018, 10:28 AM   #8
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Am I correct that there is no way to differentiate between aftertax and pretax funds within FireCalc? Or am I missing something?
Correct - Firecalc makes no assumptions whatsoever about taxes. It's left as an exercise to the reader.
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Old 10-30-2018, 10:29 AM   #9
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One method that some people have used is to adjust the pre-tax accounts into post tax amounts... In other words - reduce the nest egg by the expected amount of taxes to be paid on the retirement accounts.

I go with the simpler method of estimating my taxes as one of my many expenses used in the budget.
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Old 10-30-2018, 12:57 PM   #10
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Personally I think it's a mistake to try and use any retirement calculator to get to the "9th decimal" of accuracy.

I see these tools more as good, close estimators. If you're trying to figure out if you can retire or what your retirement income might be and pre- or after tax money is going to make the difference, then maybe you're cutting it too close.

I tend to run my numbers, assume that taxes are in there somewhere and then figure it out along the way.

YMMV
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Old 10-30-2018, 03:20 PM   #11
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Personally I think it's a mistake to try and use any retirement calculator to get to the "9th decimal" of accuracy.

I see these tools more as good, close estimators. If you're trying to figure out if you can retire or what your retirement income might be and pre- or after tax money is going to make the difference, then maybe you're cutting it too close.

I tend to run my numbers, assume that taxes are in there somewhere and then figure it out along the way.

YMMV
I agree that calculators are rough approximations and should be viewed as such.

However when you are looking at potential hefty six figure tax bill (on deferred investments) it is prudent to have a handle on exposure to Uncle Sam's taxman. So it makes sense to not simply lump all the funds together and be surprised in later years when tax bill comes due.
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Old 10-30-2018, 03:40 PM   #12
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The Fidelity calculator does show a separate column for RMD withdrawals. There is also a separate section where you input various tax rates.
Where is the Fidelity calculator?
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Old 10-30-2018, 03:42 PM   #13
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I agree that calculators are rough approximations and should be viewed as such.

However when you are looking at potential hefty six figure tax bill (on deferred investments) it is prudent to have a handle on exposure to Uncle Sam's taxman. So it makes sense to not simply lump all the funds together and be surprised in later years when tax bill comes due.
When using calculators that attempt to account for taxes, just be absolutely sure they are doing an accurate job using YOUR PARTICULAR TAX DATA. Using averages or typical amounts would likely be a disaster.

Frankly, that's why I prefer FireCalc's way of handling taxes. I make the adjustments based on my knowledge of my taxes and my estimates of what they will be going forward.

I'm long FIRE'd and collect int, divs, LTCG's, STCG's, SS and a little pension. I have also begun RMD's. Each year when I do my taxes, I make an estimate of what next year's taxes will be and include those as an expense for FireCalc. They're just part of my total spend I input.

I think I'm less likely to be surprised by future taxes doing it this way than if I relied on a retirement calculator to try to do it for me.
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Old 10-30-2018, 03:47 PM   #14
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I go with the simpler method of estimating my taxes as one of my many expenses used in the budget.

Yeah........ Taxes are just another expense that has to be paid out of pretax income.
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Old 10-30-2018, 03:50 PM   #15
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Where is the Fidelity calculator?

https://www.fidelity.com/retirement-...B&gclsrc=aw.ds


you can sign up as a guest if not a client
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Old 10-30-2018, 05:53 PM   #16
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https://www.fidelity.com/retirement-...B&gclsrc=aw.ds


you can sign up as a guest if not a client
I am not sure if you get the full calculator details if signing up as a guest, but let me know if you have questions.
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Old 10-31-2018, 07:56 AM   #17
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Originally Posted by rodi View Post
One method that some people have used is to adjust the pre-tax accounts into post tax amounts... In other words - reduce the nest egg by the expected amount of taxes to be paid on the retirement accounts.

I go with the simpler method of estimating my taxes as one of my many expenses used in the budget.
Your second method (seconded by many others) is better.

The first will overstate the tax situation. If you assume a 22% marginal bracket for example, and reduce the value of that portfolio by 22%, you are then reducing the potential growth of the portfolio. In real life, the 22% is taken out a bit each year, not all at the start. So the majority of it can continue to grow.

I'm not sure that would make a meaningful difference in a lot of cases (there may be no growth at all for the failure paths), but you need to figure that marginal rate anyhow for either method, so you might as well just apply it to spending.

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