Predicting Tax Rates for Retirement Planning?
We are currently in the 12% tax bracket and expect to be the same once we retire. The amount we actually pay has usually been around 9-11%. However, I've been experimenting with different tax rates in Flexible Retirement Planner, and am a little shocked how much even a small increase in taxes would affect our retirement plan. We would probably do OK with a an actual tax rate up to 15% or so, but above that things start getting sketchy.
Our income should go down slightly when retire, but we won't be able to deduct our IRA contributions either (since we'll be withdrawing instead of contributing). So, I'm a little nervous now about what future tax rates might be, since even small increases have a large effect. Especially since recent "tax cuts" will eventually need to be paid off with tax increases.
How do you handle tax rates for your retirement planning? Do you assume the same rate as now, lower, higher? How safe is safe? How much is over reacting?