Is the safe withdrawal rate net of income taxes or including income taxes?  J.

 

Dear J,

Thanks for your question and your interest in my research.

The safe withdrawal rate “SAFEMAX” includes the effects of income taxes paid on portfolio interest, dividends, and capital gains. For a “tax-advantaged” portfolio such as an IRA, there are no such applicable taxes, so that for those accounts, no adjustments need be made for taxes. Of course, withdrawals from IRA accounts may be subject to income taxes, but taxes on such distributions are not incorporated in my research.

For taxable accounts, SAFEMAX includes the accumulated effects of income taxes paid each year by the portfolio, for interest, dividends, and capital gains. In that case, it would be net of income taxes.

Best regards,

 

Bill Bengen