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4% Rule With Taxes Equation:
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The 4 Percent Rule With Taxes is a retirement planning strategy that adjusts the traditional 4% withdrawal rule to account for income taxes. It calculates the gross withdrawal amount needed to achieve a desired after-tax income during retirement.
The calculator uses the tax-adjusted 4% rule equation:
Where:
Explanation: This equation calculates the gross withdrawal amount needed to provide a 4% after-tax withdrawal from your portfolio, accounting for the taxes you'll pay on the withdrawal.
Details: Proper retirement planning must consider tax implications. This calculator helps ensure you withdraw enough to cover both your living expenses and tax obligations while maintaining portfolio sustainability.
Tips: Enter your total portfolio value in USD and your expected tax rate as a percentage. The tax rate should reflect your marginal tax bracket in retirement. All values must be valid (portfolio > 0, tax rate between 0-99%).
Q1: What is the traditional 4% rule?
A: The 4% rule suggests withdrawing 4% of your portfolio in the first year of retirement, then adjusting for inflation annually, which should make your savings last 30+ years.
Q2: Why adjust for taxes?
A: Withdrawals from tax-deferred accounts (like 401(k)s and traditional IRAs) are taxable as ordinary income, reducing your actual spendable amount.
Q3: What tax rate should I use?
A: Use your expected marginal tax rate in retirement, considering your total income sources and current tax brackets.
Q4: Does this work for all account types?
A: This is most relevant for tax-deferred accounts. Roth accounts provide tax-free withdrawals, so no tax adjustment is needed.
Q5: Are there limitations to this approach?
A: This assumes a constant tax rate and doesn't account for required minimum distributions, changing tax laws, or portfolio sequence risk.