4% withdrawal rule- what about taxes?
My current yearly expenses for family is 120k.Should my fire nw target be 120k*25= 3 mil? Is that enough? Where are taxes accounted for? Will I not pay taxes on the the yearly gain? Tc:400k Nw: 3.5 mil ( excluding primary home) Age:45
YOU didn’t include taxes in your expenses dummy. If you need 120k per year in after tax dollars you need to gross that up for taxes before you do your net worth calculation.
it should be enough. my suggestion would be to use a more conservative 3% number to cover contingencies. 4M should be enough for that
You will need to pay taxes, so use rule of 3% to be safe. Also, you’re on the young end so inflation will be more of a factor
Consider tax as an expense. Is 120k including tax? If yes then you are good. Otherwise add tax to 120k then multiply by 4.
If your FIRE number is 3M, your 120k withdrawal is pre-tax. HOWEVER, not all investments are made equal, and not all withdrawals are taxed the same. If you have a large Roth balance, you could lean on those tax-free withdrawals while slowly converting other pre-tax money into Roth (for free or a small tax burden). Lots of ways to do this, and lots of resources online, I bet.
For a joint filing, assuming no w2 income, federal taxes are zero for around 105k of capital gains. Move to a tax free state and you’re done.
Each mil allows 2.5k / month after tax. 10k monthly cost means 4 mil
age?
Added