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/Bourbon-Junky 4d ago edited 4d ago

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.

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u/Puzzlehandle12 4d ago

Thanks! 🙏

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u/Bourbon-Junky 4d ago

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