Any Retirement Calculators That Include Taxes?

[qwerty3656]

The Fidelity Retirement Planner is just a calculator that will project your expenses and balances over your lifetime. It does not calculate your taxes, or give you any guidance if you should be doing Roth IRA conversions or any other tax planning strategy.

Under taxes it says: "The analysis is using an estimated effective tax rate for the federal and state level based on the projected gross taxable income for a given year. We take into account the filing status and state of residence that you provided to calculate your effective tax rate estimate. The analysis assumes a state effective tax rate of 5% if state of residence is not provided. If you are subject to local income taxes, please enter an estimated effective tax rate to be included in the analysis."

So it seems to me they are calculating taxes - I just would feel alot better if I saw the $ amount of taxes they are assuming.

 

[COcheesehead]

No, it does not show a tax estimate in your expenses. I checked again today.

We’ll agree to disagree. The methodology PDF linked in the tool explains in great detail how it estimates taxes. That tax estimate amount is then added to your input expenses and reported in the summary. You can verify this by looking at your annual input expenses vs what Fidelity shows as an expense total for the year. The difference is the estimated tax.

Here is the methodology PDF. Taxes start in section 3, page 9.
https://www.fidelity.com/bin-public/060_Guidance_Pages/documents/IRE_METHODOLOGY.pdf

 

[COcheesehead]

Under taxes it says: "The analysis is using an estimated effective tax rate for the federal and state level based on the projected gross taxable income for a given year. We take into account the filing status and state of residence that you provided to calculate your effective tax rate estimate. The analysis assumes a state effective tax rate of 5% if state of residence is not provided. If you are subject to local income taxes, please enter an estimated effective tax rate to be included in the analysis."

So it seems to me they are calculating taxes - I just would feel alot better if I saw the $ amount of taxes they are assuming.

Take the difference between your input expenses and the amount they show as a total expense in the yearly summary and the difference is what they added in for taxation.

 

[Car-Guy]

Sure. I do that too. Or I just open last year's TurboTax and change numbers as per my guess of what they'll be in the future.

+1 Been doing that for years. Works well, for me.

 

[qwerty3656]

Take the difference between your input expenses and the amount they show as a total expense in the yearly summary and the difference is what they added in for taxation.

OK - I think it's starting to make some sense to me. It looks like they are assuming drawing 100% TIRA first, then when that runs out drawing Roth (and correctly not taxing the Roth draws).

 

[COcheesehead]

OK - I think it's starting to make some sense to me. It looks like they are assuming drawing 100% TIRA first, then when that runs out drawing Roth (and correctly not taxing the Roth draws).

I wouldn’t steer wrong.

 

[Al18]

I’m wrong. Sorry.

I see where taxes are added to the expense column. I had assumed the yearly increase in expenses was a yearly inflation adjustment, but this is not the case because the increase reduces when SS kicks in. For me, the projected taxes are about 40% low because I’ve been doing Roth IRA conversions for a few years. Once the conversions stop, the tax estimate seems reasonably accurate.

Honestly, it would have been better if Fidelity just included a column labeled taxes next to the total expense column on the summary pages.

 

[qwerty3656]

I had assumed the yearly increase in expenses was a yearly inflation adjustment, but this is not the case

Yeah - looks like the base case is all in today's dollars, so no inflation (you can toggle that though)

 

[COcheesehead]

I’m wrong. Sorry.

I see where taxes are added to the expense column. I had assumed the yearly increase in expenses was a yearly inflation adjustment, but this is not the case because the increase reduces when SS kicks in. For me, the projected taxes are about 40% low because I’ve been doing Roth IRA conversions for a few years. Once the conversions stop, the tax estimate seems reasonably accurate.

Honestly, it would have been better if Fidelity just included a column labeled taxes next to the total expense column on the summary pages.

It’s all good.
I agree, the taxes would stand out more in a separate column, but they state the intention of the tool is not for tax planning, but more overall retirement plan readiness and robustness.

 

[OnTheBeach]

This is an issue that I have with Firecalc - It doesn't account for taxes. Is there an option to reduce the gross return by a percentage (such as 33%) to create an "after tax return"?
I know some people have suggested that we add taxes to the expenses but that doesn't make sense. Taxes are a variable expense that change with the gross return of the portfolio. Personally, a 2.5% gross return - taxes would be 24% of my expenses / a 7.5% gross return - taxes would be 48% of my expenses / a 12.5% gross return - taxes would be 61% of my expenses. Over the last 5 years, my expenses are generally steady except for the taxes.