No. of Recommendations: 7
Edlbym: "New to this group, though have read over some of the recent threads.."

Welcome.

"ven't found this on FAQS across the web, so apologies if it's already been discussed on this board.

Basically, does the famous "four percent" rule mean before or after taxes?'


As other posters have noted, before taxes.

" need to be able to live off of 4% of my savings, or do I take out 4%, then pay taxes (let's say I get away with only 25% of my money going to taxes, for the sake of simpler arithmetic), and live off of THAT?"

Have you really looked at your tax situation.

I doubt that anyone who is retired (with a few rare exceptions) come close to an effective income tax rate of 25%.

http://www.fairmark.com/refrence/index.htm - a source you should mark for future reference:

Personal exemptions -------------------------- $3,400
Standard deduction - 2007 single or separate - $5,350
Additional for aged (65+ IIRC) --------------- $1,300

= $10,050, so 40k less 10,050, call it 30k

Single - 2007 Tax Rate Schedule: http://www.fairmark.com/refrence/2007reference.htm

Taxable income first $7,825 @ 10% = $782.50

30k - 7,825 = 22,175 @ 15% ------ = $3,326.25

Total FIT = 4,108.75, which makes the effective rate - 10.27% or well under half of your estimate.

State income tax is a function of where you live, and there are about 7 states without state income tax, so that state tax expense is largely voluntary.

You did not mention SS (or Roth IRA for that matter), but for completeness:

If you collect Social Security, some of it might be taxable, depending on your total income and marital status.

http://www.bankrate.com/brm/itax/tips/20010115a.asp

Generally, if Social Security is your only income, your benefits are not taxable, . . . .

Id.

If this amount is greater than the base amount for your filing status, a part of your benefits will be taxable.

Base amount is $25,000 for single, head of household, or qualifying widow or widower with a dependent child.

Id.

Generally, up to half of your benefits will be taxed if you exceed the base amounts. However, up to 85 percent of your benefits could be taxed if you are a single filer and the total of all your other income plus half of your Social Security checks exceeds $34,000, . . . .

Id.

Not enough information for me to even SWAG a FIT guess on your unknown SS income.

Additional information on the taxability of Social Security benefits is in IRS Publication 915, http://www.irs.gov/pub/irs-pdf/p915.pdf

Regards, JAFO
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