False. It is true when you were working you probably netted 50% after all your paycheck deductions. This is because when you were working you paid into Social Security, into a retirement plan, into a 401(k), 403(b), 457, and had miscellaneous other deductions. If your gross income was $240,000 per year, which is $20,000 per month, your bet income after al deductions was probably around $10,000. Almost every consumer thinks they will lose -50% of their gross income when they retire unless they do everything they can to REDUCE their income. We think the biggest mistake you can make is to try and minimize your income. We think you should try and maximize your income. Why? Because your average rate for combined federal and state income taxes will most likely be far lower than you thought. Here’s an easy clear-cut hypothetical example:
Let’s say your retired, bring in $60,000 of joint Social Security income and take out $180,000 per year from your IRA, providing the same $240,000 of gross as when you were working. Assuming you live in California, the high income tax state, you would not be projected to lose -50% of your gross income, you would be projected to only lose -18% of your gross income for federal and state income taxes, allowing you to keep 82% of your gross income as net income. *This calculation was done by a former Enrolled Agent with the IRS for 30 years, a current Accredited Tax Advisor®, a current Certified Financial Planner®, and who acts as a Fiduciary for every one of his advisory clients.
So, if you make the $240,000 in retirement, you will net 82%, which is $196,308 per year which is $16,359 per month after paying all your federal and state income taxes. How does this happen? In retirement, you will no longer be paying into Social Security, no longer be paying into retirement, no longer paying into 401(k), 403(b), 457, and will only be paying federal and state income taxes out of your gross income. In this example, the federal and state income taxes are estimated to be 18% of your total income, leaving you with 82% of net after-tax income. If we build a plan for you, we will include an income tax-analysis to show you what your estimated average federal and state income tax rate will be and what your estimated net monthly after-tax income will be.
