@ricke Perhaps. But they can cut it in sneaky way by pushing back the start age, or increase irmaa. (And yes, increasing contribution tax.) Or they can use inflation to pay for it. I’m not kidding sleep but i will depend on ss.
@pizzaman If you think tax rates will change in the future, you can specify the "when" and "how much (percentage-wise)" on the Home page of PRC.
Stuart
@smatthews51 It seems to be limited to a max increase of 25%. Not sure what that does. If for example I am in the 12% tax bracket and increase by the max 25%, what will my new tax rate be - 15%? That's not near enough. Can you explain. Thanks!
Saw this little tidbit, brought a smile to my face 😊 :
1795: American banker and businessman James Swan paid off $2,024,899 in national debt that the United States owed to France, which was amassed during the American Revolution.
Getting back to the topic of my original post, I rambled in my original post so let me be clearer here: the most common conception of withdrawal rate I see in the retirement literature is simply:
- Portfolio withdrawal = Portfolio withdrawal $ / Portfolio $ value at the end of the previous year.
After the dust settles I hope this widely used "common sense" conception doesn't get lost by Pralana. Indeed the current Pralana formula (Total Expenses / Portfolio value) is incorrect except in rare cases where users have no disposable income and are living just off their savings.
Is the straightforward formula above the same as the curated proposal users are voting on?
- Portfolio Withdrawal = Total Expenses minus Spendable Income / Portfolio Value
That is the part I'm thinking needs revision. On the one hand, because Total Expenses is everything one spends in total; and Spendable Income aka Disposable Income is the part of social security/pensions/rent that is not used for essentials or taxes and is therefore available to spend as an alternative to portfolio withdrawal-- In other words, income spent that doesn't come out of the portfolio, so isn't a "withdrawal".
However, one can make the case that the proposal should really be:
- Portfolio Withdrawal = Total Expenses minus Total Income / Portfolio Value
After all, spending on essentials and taxes (categories excluded in Disposable Income) are still part of one's total expenses that need to come from somewhere. So total expenses minus total income is the amount that almost by definition the amount that comes out of the savings portfolio.
I think this modified formula gets more to the heart of what we want to measure: how much gets actually withdrawn from the savings portfolio to pay everything one withdraws for--essentials and non-essentials. Disposable income is more relevant to how much is available to invest or save, not to how much one withdraws.
So in the end I am suggesting the proposal is valid, but needs to be revised. What Pralana uses currently is "wrong"-- but the proposed formula is not what we want.
Thoughts?
PS. I also find the other withdrawal % figures Pralana provides helpful (e.g. Non-essential $ / portfolio$) so I hope those are kept regardless of how they reconceive of Total Withdrawal.
I just noticed that what I'm calling the "common sense" withdrawal rate definition (portfolio withdrawal / total portfolio value 12/31 year prior) is already shown on the Review > Cashflow > Withdrawal. There is a column called "Overall withdrawal rate" which is defined as "Net cash flow / portfolio value", which I believe is the same as my suggestion of "Total Expenses minus Total Income / Portfolio Value". (Is this true?)
@jkandell I may not see your point here. When you say common sense withdrawal rate, is this the same as the old 4% rule for withdrawals? If so, I have not seen a valid comparison of the 4% rule in Pralana. The overall withdrawal rate includes other withdrawals beyond tax deferred accounts. To me, the 4% rule was designed to validate the longevity of tax deferred accounts and not other items in the "cash account". Maybe I am wrong. I am also searching a good 4% rule comparison within Pralana as I have stated in other post.
The simple calculation I use for my situation is "Withdrawal Rate from Tax Deferred compared to Total Tax Deferred Balance". Someone please educate me on all of this because I do not understand some mechanics of the Cash Account.
@jkandell I may not see your point here. When you say common sense withdrawal rate, is this the same as the old 4% rule for withdrawals? If so, I have not seen a valid comparison of the 4% rule in Pralana.
No, I wasn't referring to the 4% rule in this thread. This thread is about a column in the expense reports, not a method of withdrawal. I started this thread because I saw that a suggestion for new pralana features was getting quite a lot of user votes and didn't understand why. The suggestion was to change the formula withdrawal % shown in the right side of Review>Tabular>Expenses sheets. The suggestion getting votes was to show instead:
Withdrawal %= Total Expenses minus Spendable Income / Portfolio size.
What I called the "common sense" conception was Withdrawal % = "Withdrawal from portfolio / Portfolio size". I suggested that instead of Total Expenses minus Spendable Income might not be what people mean by the term or want to see, and rather the numerator should be
Total Expenses minus Total Income.
But then a few days I saw that on a different tabular review (Review > Cash Flow > Withdrawals), there is yet another column and formula for withdrawal %. This one shows what's called "Overall withdrawal Rate" and the formula is Net Cash Flow / Portfolio. And my last post was postulating that this "overall withdrawal" rate was another way of saying the "common sense" conception I started the thread with, namely "Withdrawal from portfolio / Portfolio". In other words, I think that Net Cash Flow is the same as Total Expenses minus Total Income is the same as Net Withdrawal.
Does that help? I think having so many different versions of the withdrawal percentage is a bit confusing, and maybe only one of them should be chosen? My suggestion didn't get any feedback from others, so perhaps that figure on the charts isn't that valuable to others.
