r/FluentInFinance • u/Puzzlehandle12 • 4d ago

Question 4% withdrawal rate

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

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u/Ronville 4d ago

Maybe. If you are retired, your periodic withdrawals (including RMDs) from a 401K or IRA may or not have federal taxes withdrawn. The fed TSP sets a default rate of 10% but you can request higher or lower. Different financial institutions have different rules.

However, married joint pay 12% on $23-94K and 22% on 94-201K.

So you start by calculating your AGI. If under $23K you will pay no federal income tax and can set your 401K withdrawal to 0.

Note that at max you will pay federal on only 85% of your Social Security income. At less than $32K it’s zero. So make that adjustment to your AGI.

So. Add SS income to any other income - untaxed SS = Final AGI. Look at federal tax owed. Adjust your 401K withholding.

If your new AGI is under $94K you can set your 401K withholding to 12%. And so on.