Enter information about taxes

Fill in the requested information for yourself and your spouse. Click a link below for more information.

•   Demographic average or Tax returns
  Indicate the source you want to base your estimate on.

  • Select Demographic average to base the estimate of your average tax rate on the average tax rate of people in your income bracket in your state .
    • Choose the state you live in from the drop-down list, and then enter your approximate gross (combined with that of your spouse, if included in your plan). The demographic average.
  • Select Tax returns to base the estimate of your average tax rate on the rate you've paid in the past.
    • If you selected Tax returns: Enter your total income, total federal taxes, and total state taxes from a previous year's return in the appropriate fields. Enter your gross salary, not net. (Be sure to include your spouse's income if your spouse is included in the plan.)
      • You can use the data from one year, or add together tax data from more than one year and let the Lifetime Planner calculates the average tax rate for you. This may give you a more accurate measure of your tax rate over time.
      • If you use more than one year, be sure you use the same range of years for all three entries. For example, if you decide to use 1992 through 1994, you'll need the enter the total of all three years of federal taxes added together, the total of all three years of state taxes added together, and the total of all three years of income added together.
•   Adjust the rate if you want it to be higher or lower than the estimate

  Tax rate before retirement is the percent of your income that you will pay in taxes on average from now until you retire. Your before-retirement tax rate is applied to your earned income from salaries and your unearned income from taxable realized investment gains. A higher average tax rate reduces the money you have to spend and slows the compounding of your taxable investments.

  Enter a different tax rate if you know the data from your tax return is not representative of your tax rate over your lifetime. For example, you might lower the tax rate if you just bought a home and can now deduct mortgage interest, but your previous tax return does not reflect that. You might raise the tax rate if you want to be conservative in your plan.

•   What is your estimated after-retirement tax rate?

  Tax rate after retirement is the percent of your income you will pay in taxes on average each year after retiring. Your after-retirement tax rate is applied to your salaries, benefits, and taxable realized gains due to investment growth or withdrawals from investments. The higher your tax rate after retirement, the more investments you'll need to sell to net enough money to cover your expenses.

  Enter an estimate for your after-retirement tax rate. Use your before-retirement tax rate if you think you'll keep the same or higher income after retirement. Use a lower rate if you think you'll have a lower income after retirement.

  If you are considering moving to a different state after you can retire, you can click Demographic Average, select a different state , and then select your expected income range to get an idea of what your average tax rate might be. Be sure to restore your original settings (where you live now and your current income) when you've finished experimenting.

  Remember, this is just an estimate. You can change your after-retirement tax rate any time that you want to make adjustments to your plan.

Notes

•   Which tax rate does the Lifetime Planner calculate?
  The Lifetime Planner calculates your average tax rate, not your marginal tax rate.
•   How does the Lifetime Planner estimate yearly tax expenses?
  Refer to the topic on calculating yearly tax expenses.
•   Tips about entering different types of taxes
  • In the Lifetime Planner, Social Security and Medicare taxes are automatically included in your plan.
  • Enter property taxes in the Current (or Future) Homes & Assets section.
  • Enter local income taxes in the Living Expenses section.
  • Include sales taxes in the purchase price of large individual expenses that you enter in the Living Expenses or Special Expenses sections.
•   General tips
  For general information on filling out the Lifetime Planner, see the Tips topic.

Return to Get started with the Lifetime Planner.