I’ve long promoted using free retirement calculators, easily available on the web, to get a better handle on your retirement trajectory. These tools give you a sense for how much you need to save to retire, providing much-needed perspective and motivation.
I’ve also advocated for ignoring the hideously complex U.S. tax code whenever possible in your planning. Sometimes you can boil that tax code down to a simple “effective” tax rate. Further detail would just be intimidating and distracting for many prospective retirees early in the process. For example, I’ve shown that our taxes in early retirement are a relatively small expense, far less than we spend on either housing, health care, groceries, or recreation.
But, when it comes time for the major financial decisions, like leaving a career, or choosing an investment strategy in retirement, you can’t afford to ignore taxes. You need to get those details right, if you want a realistic picture of your financial status. Without accurate projections of your tax obligations, you run the risk of making serious financial mistakes with your retirement assets. Guessing at your retirement taxes using simplistic effective tax rates just isn’t good enough….