This week, I’m talking about whether or not $1 million is going to be enough for a comfortable retirement.

Today, we’re covering everyone’s favorite subject - taxes. So far this week we’ve looked at how $1 million in retirement can provide about $40,000 income in retirement in year one of retirement, and how you can combine that income with your other income sources to determine if that will be enough for a comfortable retirement. 

But I haven’t yet talked about the impact of taxes, and it makes a big difference. 

When you’re planning for retirement and adding up your income sources, you’ll want to use the after-tax figure. Especially when you’re trying to match up those income sources with your lifestyle and spending goals in retirement. 

So you’ll need to know the impact on taxes. And this can vary widely from person to person and from portfolio to portfolio. 

For example, if your $1 million portfolio is invested in a Roth IRA, you won’t owe any taxes on those withdrawals. If it’s invested in a taxable account like a joint account or a trust, you’ll pay capital gains on what you sell to generate that $40,000 withdrawal, and if you have everything in a Traditional IRA or 401k, you can expect to pay income taxes on every penny you withdraw from that account. 

Chances are your portfolio is invested in some combination of these accounts, which means that there will be taxes to consider - likely in the 10-30% range - before you arrive at your net after-tax amount. So your million dollar portfolio may provide even less income for you in retirement after taxes are taken out - instead of $40,000, you may end up with $30,000 or $35,000 after Uncle Sam is finished with you. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.

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