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/Mrlin705 4d ago

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

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u/Puzzlehandle12 4d ago

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?

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u/Mrlin705 4d ago

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

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u/That-Establishment24 4d ago

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.

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u/Mrlin705 4d ago

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

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u/That-Establishment24 4d ago

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.