What Will Your Tax Rate Be In Your Retirement?

“In this world, nothing is certain except death and taxes.” -Ben Franklin, 1789

During all of our working years, almost all of us pay something in taxes. Call it an income tax, call it social security tax, call it employment tax; at the end of the day, money you involuntarily pay to a government is a tax, regardless of its label.

Predicting your tax rate in retirement can be difficult because forecasting your income, what investments you’ll sell, from which accounts you’ll sell those investments, and your dividend and interest income creates a sometimes complex mix of factors.

Variables That Impact Your Tax Rate

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The first factor that impacts your tax rate is how much income you make during your working years. In retirement, this shifts to how much taxable income you need to generate to meet your spending needs.

Higher Income, Higher Income Tax Rates

In general, the higher your income when working the higher your income tax rate. The more taxable income you need to generate to meet your spending needs in retirement, the more tax you will generally pay.

The same amount of income will generally be taxed at lower rates in households married and filing jointly than for single taxpayers. That’s because the same amount of income can be spread across wider tax brackets when married filing jointly.

Single vs. Married Filers

Seven states have no state income tax. Eleven states have a flat income tax structure. The remaining states have graduated rates.

State Income Taxes

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