Retirement Goal Projections: After-tax vs Before-Tax

To help you understand your future retirement balance and spending ability, we let you project your retirement goal in two ways: before-tax and after-tax. Both options adjust for inflation, so you’re always looking at the forecasted “spending power” value of your money.

Before-tax: Helps you forecast your retirement account balance over time. You can compare this to other projections or use it to get an idea of how your balance can grow.

After-tax: Helps you forecast your retirement account balance over time once taxes are taken out. This can help you plan for how much money you’ll actually have to spend. For example, a $40,000 distribution from a traditional IRA will be taxed at ordinary income tax rates. Assuming a 25% ordinary income tax rate, you would have $30,000 to spend after you’ve paid your taxes.

To produce your after-tax projection, we take into account the following:

  • Your current balances and what type of account(s) they are in.
  • Your estimated tax bracket at the time of withdrawal.
  • An assumption that you’ll put your planned future contributions into traditional accounts.
  • Traditional accounts are generally associated with the highest tax rate each of us pays, so this conservative assumption helps to prevent you from saving too little due to taxes.
  • An assumption that you’ll pay long-term capital gains rates on the full balance of your taxable accounts. Again, this is a very conservative approach to estimating future after-tax value because in reality you only owe taxes on gains.