Don’t Forget Your Taxes, Part II

 This post is a brief follow-up to our post of May 6, 2023 in which we
reminded you that taxes are essential expenses that must be planned for
in retirement. As is the case with other expenses expected in
retirement, you must make assumptions about how your current tax
expenses will change in the future to develop a reasonable estimate of
the total present value of future household expenses (i.e., household
spending liabilities), against which the total present value of
household assets is compared to develop your Funded Status.

Congress
is currently debating various changes to the U.S. tax code. If adopted,
these changes may affect your expected future federal income taxes and
the present value of your future essential expenses. Therefore, it makes
sense for you to estimate what the financial impact of the new tax law
will be on your estimated future taxes once the new law is passed by
Congress and signed into law by the President.

As discussed in the
May 6, 2023 post, future taxes may also increase when you receive
distributions from tax-qualified accounts such as IRAs or 401(k)
accounts and may also increase when you sell appreciated assets or
receive other income in the future. If applicable, you should anticipate
payment of such higher future taxes in your planning when using the
Actuarial Financial Planner by using one of the following three
approaches:

• assuming higher rates of future increases for the total tax expenses in your recurring expenses,
• inputting
  expected taxes as an “expected non-recurring expense” at the expected
  time of asset sale or receipt of other income, or
• inputting the
  expected “other income” items, net of the additional taxes that may be
  incurred at the expected time of sale or receipt of other income.