Basic Firecalc question

[hogwild]

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"?

 

[REWahoo]

Very basic answer: Yes

 

[Rich_by_the_Bay]

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.

 

[hogwild]

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.

 

[REWahoo]

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.