Fidelity Retirement Analysis Tool

[RetiredHappy]

I have a question on the Taxes section.

I have only enter my data into the Retirement Analysis tool. We always file "Married Filing Jointly". Since I only have my information entered, should I select "Married Filing Separately"? They is a difference in the score and assets at the end of plan based on the filing status.

I have not looked at the tool to explore the differences, but if you only input your data and not take into consideration of your spouse, then you should really select single. Is there a reason to not input your spouse's data?

 

[G-Man]

One more thing I noticed when looking at the table view. I noticed that my annual expenses in the table view is higher than the expenses inputted in the "Detail Expense" section. Is the tool adding inflation to the my annual expense amount? Please advise.

 

[latexman]

One more thing I noticed when looking at the table view. I noticed that my annual expenses in the table view is higher than the expenses inputted in the "Detail Expense" section. Is the tool adding inflation to the my annual expense amount? Please advise.

Yes, if viewing "Future Dollars".

 

[Dtail]

Yes, if viewing "Future Dollars".

Actually it also changes when viewing in "Today's Dollars" too. Minor changes, but not sure why, as it is not the inflation rate change.
The income side is exact to the inputs in current dollars, but not the expenses.

 

[latexman]

Actually it also changes when viewing in "Today's Dollars" too. Minor changes, but not sure why, as it is not the inflation rate change.
The income side is exact to the inputs in current dollars, but not the expenses.

Yes, it is "noisey". Up 1-2% one year, down 1-2% the next. No rhyme or reason. I see jumps when I have plans, like LTC near the end. But the "noise" is negligible compared to toggling on Future Dollars.

 

[G-Man]

Actually it also changes when viewing in "Today's Dollars" too. Minor changes, but not sure why, as it is not the inflation rate change.
The income side is exact to the inputs in current dollars, but not the expenses.

My income is not the same per year either. For some reason, it decreases each year. What I'm doing wrong? Must be something simple I'm missing.

 

[G-Man]

Ok. I found that for the income section, for each entry, if you select "Adjust to future dollars", the income amount for that income does not change from year to year. If you have it unchecked, the income amount decreases year after year.

What is the correct settings? Please advise.

 

[latexman]

Ok. I found that for the income section, for each entry, if you select "Adjust to future dollars", the income amount for that income does not change from year to year. If you have it unchecked, the income amount decreases year after year.

What is the correct settings? Please advise.

Each income source that is COLA'd, check the "Adjust to future dollars". Each income source that is not COLA'd, do not check the "Adjust to future dollars"; it should be un-checked.

You could also click the ? mark beside the "Adjust to future dollars" and figure it out yourself.

 

[G-Man]

Each income source that is COLA'd, check the "Adjust to future dollars". Each income source that is not COLA'd, do not check the "Adjust to future dollars"; it should be un-checked.

You could also click the ? mark beside the "Adjust to future dollars" and figure it out yourself.

Thanks for your response.

 

[tmm99]

Actually it also changes when viewing in "Today's Dollars" too. Minor changes, but not sure why, as it is not the inflation rate change.
The income side is exact to the inputs in current dollars, but not the expenses.

Right. I've always wondered about that too. Strange.

 

[G-Man]

One more question about the tool and how to handle rule of 55 taxes.

The rule of 55 requires an employer to withhold 20% from any rule of 55 withdrawal for federal income tax, which is non-negotiable. How would you input that data in the Fidelity tool so that the taxes are accounted for.

 

[G-Man]

One more question about the tool and how to handle rule of 55 taxes.

The rule of 55 requires an employer to withhold 20% from any rule of 55 withdrawal for federal income tax, which is non-negotiable. How would you input that data in the Fidelity tool so that the taxes are accounted for.

So if my annual expenses are $50K, I need to withdraw $60K per year from my 401K plan.

Does the Fidelity tool take this in consideration already?

 

[Escapevelocity]

Actually it also changes when viewing in "Today's Dollars" too. Minor changes, but not sure why, as it is not the inflation rate change.
The income side is exact to the inputs in current dollars, but not the expenses.

I believe this has to do with an assumption built into the tool that medical expenses will grow faster than inflation. This causes the "today's dollars" values to inflate since they are going up in real terms.

 

[Escapevelocity]

One more question about the tool and how to handle rule of 55 taxes.

The rule of 55 requires an employer to withhold 20% from any rule of 55 withdrawal for federal income tax, which is non-negotiable. How would you input that data in the Fidelity tool so that the taxes are accounted for.

Withholdings are not relevant to the tool inputs. Your withholdings are ultimately not what drives your tax expense since you can get a refund for an over withholding. The tool makes its own calculation on the federal tax liability based on your calculated withdrawals from pre-tax accounts.

 

[DireWolf]

One more question about the tool and how to handle rule of 55 taxes.

The rule of 55 requires an employer to withhold 20% from any rule of 55 withdrawal for federal income tax, which is non-negotiable. How would you input that data in the Fidelity tool so that the taxes are accounted for.

This is just withholding, the ultimate tax gets figured on your return the next year. If your tax-rate is lower, you’d get whatever refunded

 

[Dtail]

I believe this has to do with an assumption built into the tool that medical expenses will grow faster than inflation. This causes the "today's dollars" values to inflate since they are going up in real terms.

A logical assumption. Never thought of that angle.

 

[G-Man]

This is just withholding, the ultimate tax gets figured on your return the next year. If your tax-rate is lower, you’d get whatever refunded

So if my expenses are $50k annually, I need to plan to withdraw $60k per year until age 59 1/2 to accommodate for the 20% withdrawal holding.

Once again, I will be using the rule of 55 to withdraw from 401k until age 59 1/2.

 

[Koolau]

So if my expenses are $50k annually, I need to plan to withdraw $60k per year until age 59 1/2 to accommodate for the 20% withdrawal holding.

Once again, I will be using the rule of 55 to withdraw from 401k until age 59 1/2.

I am NOT a tax expert but keep in mind you probably will not be actually owe 20% on your withdrawals. Yes, I think you have to do the 20% withholding. But the tax bill will all shake out when you file your 1040. SO, maybe you don't actually need to take 60K to end up with 50K - especially after the first year. Of course, you need to cover state taxes as well - on your own, not withhold as I recall. Isn't this fun? Don't forget - YMMV.

 

[JT90505]

Actually it also changes when viewing in "Today's Dollars" too. Minor changes, but not sure why, as it is not the inflation rate change.
The income side is exact to the inputs in current dollars, but not the expenses.

The tool calculates taxes.

From Fidelity's "Detailed Methodology" PDF:

"...The Total Expenses amount includes estimated taxes...

...The Tool estimates federal, state, and local individual income taxes
on, among other things, investment earnings, distributions from
tax-free and tax-deferred retirement plans, Social Security, and any
earned income or salary...

...tax calculations for any particular year are estimates based on information provided by you, tax rate data supplied by third parties, and projected inflation adjustments to tax brackets, among other things...

...The Tool makes certain tax assumptions based on the types of
income, accounts, or other information entered. For each year of
the projection of your financial plan, the Tool estimates your effective tax rate based on projected taxable income..."

and yes,
"Health Care Costs: The default inflation rate of health care costs
is a schedule of rates, which start at 4.9% for some time and
slowly decrease to general inflation, based on Fidelity research..."

Given the above, it appears that changes in total expenses will vary based on assumed taxes and changes in assumed health care inflation, which will change based on what accounts money will be coming from as well as what other tax assumptions made.

 

[G-Man]

The tool calculates taxes.

From Fidelity's "Detailed Methodology" PDF:

"...The Total Expenses amount includes estimated taxes...

...The Tool estimates federal, state, and local individual income taxes
on, among other things, investment earnings, distributions from
tax-free and tax-deferred retirement plans, Social Security, and any
earned income or salary...

...tax calculations for any particular year are estimates based on information provided by you, tax rate data supplied by third parties, and projected inflation adjustments to tax brackets, among other things...

...The Tool makes certain tax assumptions based on the types of
income, accounts, or other information entered. For each year of
the projection of your financial plan, the Tool estimates your effective tax rate based on projected taxable income..."

and yes,
"Health Care Costs: The default inflation rate of health care costs
is a schedule of rates, which start at 4.9% for some time and
slowly decrease to general inflation, based on Fidelity research..."

Given the above, it appears that changes in total expenses will vary based on assumed taxes and changers in assumed health care inflation, which will change based on what accounts money will be coming from as well as what other tax assumptions made.

Do you have a link to the "Detailed Methodology" PDF?

 

[JT90505]

did not paste correctly, its on the page you get with your analysis.

try2
https://www.fidelity.com/bin-public/060_Guidance_Pages/
documents/
IRE_METHODOLOGY.pdf

 

[RobLJ]

Withholdings are not relevant to the tool inputs. Your withholdings are ultimately not what drives your tax expense since you can get a refund for an over withholding. The tool makes its own calculation on the federal tax liability based on your calculated withdrawals from pre-tax accounts.

I'm pretty sure this is correct, in that the tool I believe calculates taxes owed, not withdrawn.
My 403b also requires 20% withholding, but I considered that in taking the next year withdrawal, knowing I will get more than 2/5 withholdings back when I file taxes. DW can take from her IRAs next year without penalty, so I'm taking my withdrawal first, then hers with almost no withholding for her withdrawal (I will need to take on about 3% withholding on hers to have withheld enough).

 

[G-Man]

I'm pretty sure this is correct, in that tool I believe calculates taxes owed, not withdrawn.
My 403b also requires 20% withholding, but I considered that in taking the next yeat withdrawal, knowing I will get more than 2/5 withholdings back when I file taxes. DW can take from her IRAs next year without penalty, so I'm taking my withdrawal first, then hers with almost not withholding for her withdrawal (I will need to take on about 3% withholding on hers to have withheld enough).

Can you please explain. So, you just take less in withdrawal next year?

 

[RobLJ]

Yes, exactly.



Although for the last two years, we're withdrawing up to the 12% income tax limit and sticking what we don't use in a taxable brokerage account for long-term capital gains treatment. If I were doing what I did originally, I would just withdraw less the next year.



The brokerage has become a slush/big emergency fund, just in case something happens in the extended family.

Can you please explain. So, you just take less in withdrawal next year?

 

[DireWolf]

So if my expenses are $50k annually, I need to plan to withdraw $60k per year until age 59 1/2 to accommodate for the 20% withdrawal holding.

Once again, I will be using the rule of 55 to withdraw from 401k until age 59 1/2.

In my state, the income taxes on $60K for a single filer are a bit less than 20%., so you end up getting a refund of about $1300 each year you take out $60K. Eventually you might choose to take out a bit less and cover the taxes from this accumulating refund money. And if you are married, it’s a much larger refund, closer to $4200 each year. But that is my state of NC, ymmv