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(3) Pension or annuity: If the payments are fixed for life, multiply the after-tax annual value of your payments times your current age divided by 100. So, if you were getting a $30,000 fixed pension each year, a 20% tax would be 0.20 x $30,000 = $6,000 and the after-tax amount would be $30,000 - $6,000 tax = $24,000. The amount you could afford to spend this year at age 70 would be $24,000 x 70 / 100 = $16,800. That leaves $24,000 - $16,800 = $7,200 to be reinvested to compensate for future inflation.
A Practical Note: Rather than save a certain amount from each Social Security and pension check, it’s usually more practical to spend the entire after-tax amount and reduce the amount that you would otherwise draw from investments by a comparable amount. In this example case the amount you would subtract from the amount you can draw from investments would be $2,700 (if you used the Social Security refinement) as well as $7,200 for a year’s pension withdrawals. Next we’ll calculate how much you project you can afford to draw from investments before such reductions.
From Analyzenow.com "Simplest Retireemnt Plan" article
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