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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76422  
Subject: Re: Does the 4% rule include taxes Date: 6/2/2011 2:44 PM
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AlanK:

If one has $1 million in a retirement plan and needs $40,000/ year to live do you really need more than a million since that money will be taxed when it is removed from the retirement account?

Do you plan to withdraw the whole million dollars in ONE YEAR? If not, how much you withdraw from an IRA or other similar account in a given year should only be taxed as income for that year, combined with any other sources of income.

We have paid almost ZERO income tax, state or federal, for three years, even though I DO withdraw sums from my IRA acccount. We live reasonably comfortably on our combined SS income, plus a very small pension I get, some non-IRA dividends, and my IRA withdrawals.

Remember that you pay NO tax within an IRA, no matter how much it makes for you. Again, you only pay when you withdraw the money. (I believe withdrawals from a ROTH are not taxed at all, since the money was taxed before it went in, but I don't have a ROTH, so I'm not sure.)

Also not mentioned is how actively and how skillfully you actually manage your investments.

Seriously.

If you plan to be uninvolved, and to just accept whatever your investments do, without monitoring them or trying to make any changes, then 4 percent may be "safe", though I cannot claim to agree or disagree.

I actively monitor my investments within my IRA. Some basic holdings I keep for a longer time because they pay good dividends and/or are growing in value. However, I also make buys or sells, as my own digging/research suggest I should.

I've taken a lot MORE than 4 percent each year for the 10 years since I retired, and I do just fine. In 2011, for example, YTD, I'm up 13.10 percent, even after withdrawals. (Because I am -- or will be -- more than 70-1/2 this year, I MUST withdraw a minimum percentage from my IRA. However, I've already substantially exceeded that amount as of May, but my IRA is still UP from the start of the year, anyway.)

Again, I think it's in your interest to learn about investing, and to actively follow what your investments are doing, whether or not you actively make changes.

My opinion. This works for me, but I do not necessarily recommend it for anyone else.

Vermonter
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