Author Topic: Question regarding Retirement Savings vs Years Math  (Read 1797 times)

retiringsoon

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Question regarding Retirement Savings vs Years Math
« on: July 11, 2013, 10:56:47 PM »
Hi, in this blog post
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

there is a very simple spreadsheet to determine roughly how long it will take to reach FI based off your savings rate. Something I dont quite understand however is where is tax accounted for in the calculation? Income is take home, so the savings are based off post tax, but does it then assume that the withdrawal money for FI is not taxed? I would expect you'd need to get to 110% say of your Safe Withdrawal Rate to account for being taxed at 10% or whatever you feel it might be? This would then add more time to truly reach FI.

Thanks

worms

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Re: Question regarding Retirement Savings vs Years Math
« Reply #1 on: July 12, 2013, 12:00:50 AM »
I assumed that this was designed as a very simple example to show the theory.  In practice it is a bit more complex as most people will have their investments in a range of taxable and tax-exempt vehicles.  But as an initial entry-point to get folks to grasp the idea it's pretty good.

matchewed

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Re: Question regarding Retirement Savings vs Years Math
« Reply #2 on: July 12, 2013, 04:02:32 AM »
You'll have many different investment vehicles with different tax rules to draw down from. The assumption is that your expenses will also be low enough to minimize your tax bill greatly by drawing down from your different accounts wisely.

fiveoclockshadow

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Re: Question regarding Retirement Savings vs Years Math
« Reply #3 on: July 12, 2013, 05:10:18 AM »
Besides being a simplification the assumption is also that you don't draw much each year.  MMM is often budgeting for $25K for a family of three.

So, standard deduction is 12K, three exemptions is 11.5K leaves only 1.5K in taxable income.