I’m wondering how others account for their taxable retirement account holdings in their net worth calculations for FIRE, especially since taxable retirement accounts represent a fairly substantial proportion of holdings in this community, myself included. I’m not considering Roths, just 401Ks and similar taxable accounts
Considering that some of these holdings are not “net” in that they’re subject to taxes upon withdrawal, I’ve been assuming a 15% reduction in that part of my net worth, assuming that when I withdraw from these accounts, 15% of the money will be taxed. Of course, I realize we really can’t predict what the tax rate will be 5, 10 or 20 years in the future, but a 15-20% effective tax rate is about what it would be if I started withdrawals today.
I’m aware of withdrawal strategies to reduce the amount of taxes we’ll pay at retirement but even keeping taxable withdrawals to a minimum will trigger some tax.
So in determining the total amount I need to retire, using the Trinity SWA of 4% and 40K as my goal would mean I need one million dollars to safely retire (and being on the conservative side, I’m thinking of reducing that to a 3% rate which means I need even more). I’m not sure if the Trinity study accounted for taxes so when determining the total net worth do you increase it by some amount to factor in a tax rate?
Always appreciate others’ perspectives. Thanks, Paul