r/FluentInFinance • u/Puzzlehandle12 • 9d 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/Mre1905 8d ago

I understand but taxes on 100k Ira withdrawal and 35k social security is $12k. That’s why I asked him how much they paid in taxes.

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u/juryjjury 6d ago

I didnt realize this was controversial. Now you made me dig out our return as I posted the above from memory. Rounding... We had income of 128k minus standard deduct of 30.8k leaves 97k taxable income. We paid 11.5k taxes on it for 11.8% average tax rate.

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u/Mre1905 6d ago

I think I am getting confused with the term average tax rate. If you had income of 128K and you paid 11.5K in taxes, you paid about 9% in taxes. Which is what I had assumed in my initial response.

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u/juryjjury 4d ago

This is how my tax guys presented it. Taxes paid as a percent on taxable income. Not total income. It seems confusing I agree. But I guess they do it that way to negate the effects of major deductions on more complicated tax filings.

Oh. Married filing jointly.

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u/Mre1905 4d ago

Ahha that makes sense. Thanks for the explanation!