Author Topic: FIREcalc: Should I add in taxes when I input spending?  (Read 1456 times)

mustachianteacher

  • Stubble
  • **
  • Posts: 204
FIREcalc: Should I add in taxes when I input spending?
« on: December 24, 2016, 09:52:14 AM »
I spent about an hour tinkering with FIREcalc yesterday, seeing if our worst case scenario would still work, when I suddenly realized that the calculator never deals with taxes. (Or does it?) I was entering my spending as our actual spending, but should I increase it to account for taxes?

csprof

  • Stubble
  • **
  • Posts: 229
Re: FIREcalc: Should I add in taxes when I input spending?
« Reply #1 on: December 24, 2016, 10:06:17 AM »
I spent about an hour tinkering with FIREcalc yesterday, seeing if our worst case scenario would still work, when I suddenly realized that the calculator never deals with taxes. (Or does it?) I was entering my spending as our actual spending, but should I increase it to account for taxes?

Yes, you need to include taxes as a part of your total spending.

(It's impossible for the calculator to account for that - if you're living on income from a Roth IRA, for example, you'll be in a different position than if you're living on taxable income.).  Include a rough estimate of your tax rate as part of what you need to spend.

Spork

  • Walrus Stache
  • *******
  • Posts: 5753
    • Spork In The Eye
Re: FIREcalc: Should I add in taxes when I input spending?
« Reply #2 on: December 24, 2016, 10:32:19 AM »
I spent about an hour tinkering with FIREcalc yesterday, seeing if our worst case scenario would still work, when I suddenly realized that the calculator never deals with taxes. (Or does it?) I was entering my spending as our actual spending, but should I increase it to account for taxes?

If you are using your actual expenses... it includes taxes.  They're actual expenses.  ;)

This is a recurring issue.  Lots of folks seem to use "net" numbers.  If you account for gross numbers (and enter your real expenses, which include taxes) then you're golden.

I'll also mention that it is highly likely your taxes are much lower in FIRE.  I am sure there are edge cases where they are the same (and maybe some where they are higher) but that is not going to be the norm.  If you want to be overly conservative (like me) you can estimate FIRE as the same as pre-FIRE, then be happily surprised when your expenses drop due to less taxes.

mustachianteacher

  • Stubble
  • **
  • Posts: 204
Re: FIREcalc: Should I add in taxes when I input spending?
« Reply #3 on: December 24, 2016, 10:52:51 AM »
Thanks!

I think our tax bill probably will go down slightly, but it's difficult to estimate, so I'll just assume the same effective tax rate we have now.