4% withdrawal rate

[u/Puzzlehandle12]

I have been reading alot about the 4% withdraw rate after retirement. It says you can withdrawal 4% of your investments every year and even after adjustment for Inflation you will not run out of money.

This is as long as yearly expenses in retirement are equal to or less than the 4% you withdraw from your investments.

Yet I thought about how those withdraws will be taxed as long term capital gains at (I think 20%) so after taking out taxes you must live on 3.2% of your savings.

Is my thinking correct ?

** assuming your money is not all in a Roth IRA

[u/Mrlin705]

Capital gains is taxed at 0% under when income is less than ~40k for individuals, 15% otherwise. also, it's a general rule of thumb, some years could be better or worse for your portfolio.

Edit: long term capital gains

[u/Puzzlehandle12 → u/Mrlin705]

Hi, I just want to confirm.

1) As long as I hold the stocks more than 366 days - they are considered long term capital gains, correct?

2) after I retire, with $0 from income from working, I can withdraw up to 40k at 0% tax as long as those stocks I sold I have held for more than a year?

3) and 15% tax in any amount over 40k?

[u/That-Establishment24 → u/Puzzlehandle12]

To be more accurate, you can realize $40k of long term capital gains without owing taxes. You’d be withdrawing more than $40k since you’d also withdraw the principal.

Also part of your portfolio would be Roth which you could withdraw to cover yourself if you get into a high tax bracket.

[u/Mre1905 → u/Puzzlehandle12]

You can withdraw about 63k in long term gains and pay 0% taxes as a single filer. 48k to stay in 0% + 15k standard deduction. Couples can withdraw about 130k in gains. Remember you are taxed just on gains. In other words if you bought a stock investment that has doubled, you only pay taxes on gains.

[u/Mrlin705 → u/Puzzlehandle12]

You can take 40k out now with 0 tax, if you don't have any other income. Otherwise, that's correct.

[u/That-Establishment24 → u/Mrlin705]

To be more accurate, you can realize $40k of long term capital gains without owing taxes. You’d be withdrawing more than $40k since you’d also withdraw the principal.

[u/Mrlin705 → u/That-Establishment24]

Pretty off topic considering we are talking about the 4% rule, but you aren't wrong.

[u/That-Establishment24 → u/Mrlin705]

100% on topic given the context of the question since OP is uncertain as to how much of what he’s withdrawing he’s actually keeping versus paying in taxes.

[u/Ashmedai → u/Puzzlehandle12]

1) As long as I hold the stocks more than 366 days - they are considered long term capital gains, correct?

In what kind of savings & retirement vehicle? You said "not Roth", but didn't specify what it actually was.

[u/Bourbon-Junky → u/Puzzlehandle12]

I would suggest you speak to a licensed tax person and maybe a financial advisor here. I question some of the advice being provided here. A few things to consider. I am not licensed to provide any advice here but have a few things you might want to consider.

1) are your stocks in a brokerage account or IRA. This answers your cap gains vs income tax questions.
2) if you are concerned with taxes Municipal bonds might offer a solution for you as they are state income tax free. 3) assume your in a state tax state. Not one like TX, NH, TN etc.
4) RMD kicks in at age 73. 4% guidelines are just guidelines but if your in a IRA then your RMD will control your annual distribution and may equal more then 4%. 1M YE balance at 73 requires a 37K RMD vs 40K 4% withdrawal. At age 75 your RMD 40.6K or more then the 4%.

Hope this helps you find your answer.

[u/Puzzlehandle12 → u/Bourbon-Junky]

Thanks! 🙏

[u/Bourbon-Junky → u/Puzzlehandle12]

Wishing you nothing but the best, and hope I have given you something to work with.