### Author Topic: How to Calculate Retirement Withdrawals?  (Read 773 times)

#### WaterBottle

• 5 O'Clock Shadow
• Posts: 1
##### How to Calculate Retirement Withdrawals?
« on: September 26, 2018, 07:46:25 AM »
Hello -- I'm new to the idea of FIRE and am excited by it. I have a beginner question I was having a hard time finding the answer to!

I understand that retirement income will be 4% (or less) of savings (which translates to 25x annual expenses) but am not clear on how to calculate when taxes are considered.

In other words, much of my savings are in tax deferred plans, aka a 403b (or 401k for others) and that will be taxed upon withdrawal (as the money went into it was pre-tax). If my annual expenses are \$50k for example, and that \$50k needs to be after tax money because it is what I need to spend, then my savings need to be MORE than 25x that amount because they are getting taxed, no? In other words I will need to withdraw about \$70k or more (totally a guess for this example) so that I end up taking home \$50k for my expenses, which means that I would need 25x the \$70k number and not 25x the \$50k number.

It seems the calculation is somewhat more complicated than originally presented, no? I am having trouble figuring out the actual number. I hope this makes sense.

Thanks!!

#### Dragonswan

• Bristles
• Posts: 335
• Location: Between realms
##### Re: How to Calculate Retirement Withdrawals?
« Reply #1 on: September 26, 2018, 08:07:07 AM »
You need to think of taxes as an expense.  Then 25x your expenses works.  Look up the effective tax rate for your expected expenses and add that in.

#### TheHardenedInvestor

• 5 O'Clock Shadow
• Posts: 99
##### Re: How to Calculate Retirement Withdrawals?
« Reply #2 on: September 26, 2018, 08:43:50 AM »
You do have to think about taxes but know that you can avoid a lot of taxes by strategically withdrawing money from different account types and staying within limits. For example, if you’re married and filing jointly, and with no earned income you could today (in 2019) take out \$24,000 from a tax deferred account and pay no taxes on it. Then get the rest of expenses from other accounts. This is super basic, but just be aware there are strategies to get money out tax free.

#### MDM

• Walrus Stache
• Posts: 9494
##### Re: How to Calculate Retirement Withdrawals?
« Reply #3 on: September 26, 2018, 07:29:01 PM »
In other words, much of my savings are in tax deferred plans, aka a 403b (or 401k for others) and that will be taxed upon withdrawal (as the money went into it was pre-tax). If my annual expenses are \$50k for example, and that \$50k needs to be after tax money because it is what I need to spend, then my savings need to be MORE than 25x that amount because they are getting taxed
Yes.

In the worst case (100% of cash flow comes from traditional withdrawals, and you live in a high tax state such as Oregon), you need ~\$58K gross to clear ~\$50K after federal and state tax.  See the case study spreadsheet if you'd like to test your actual situation.

#### boarder42

• Walrus Stache
• Posts: 7849
##### Re: How to Calculate Retirement Withdrawals?
« Reply #4 on: September 27, 2018, 05:30:35 AM »
70k seems high you dont keep paying the same amount of tax as you do now see MDMs post above 58k is what you'd need if you were spending 50k in a really high tax state.