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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: CD or treasury bill ? Date: 6/20/2006 11:21 PM
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I'm currently trying to understand taxes enough to project them. I have a handle on what we want to spend, I now need to figure out how much more income it will take to cover the associated taxes.

Vicki,

I agree that getting a handle on taxes during retirement, even assuming current tax laws (which we know will change) is even harder than projecting future expenses. I'm also pretty sure, in our case, that we will be in a lower tax bracket (i.e., current 15%) for the first part of retirement, assuming we postpone retirement account withdrawals and Social Security, than once we have to take RMDs.

I generally try to leave a healthy margin for error, so basically what I've been doing for estimates, even during phase one, is to take projected expenses and figure taxes on those, with no deductions. That's certainly an overestimate for phase 1, but maybe not later on.

Of course, you can make the effort to be more precise, although even if you can come close on income projections, tax brackets are adjusted for "inflation." If you have RMDs, and you think you can live on those plus SS, you can more or less figure those out and what the taxes would be.

I also know how much current state plus federal taxes are on Adjusted Gross Income and I figure taxes in retirement will always be less percentage-wise than that. So, if I figure initial expenses plus about 3/4 or 4/5 of current tax % on expenses as part of my initial withdrawal needs, that should give me margin for error. But I'm aiming for low initial withdrawal rate. If you're going to have to tighted the belt to survive, being more accurate and not worrying so much about margin for error may make more sense.
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