BiggerPockets Money Podcast No, Taxes Won’t Derail Your FIRE: Here’s What You’ll Really Pay in Retirement
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May 20, 2025 Mark Livingstone, an investor and data analyst, dives into how taxes in retirement are less daunting than most people believe. He reveals insights from his free tax spreadsheet that predict retirement tax burdens. The discussion highlights the differences between marginal and effective tax rates, showing that early retirees often pay less tax today than in previous decades. Mark also shares strategies to optimize withdrawal methods and explains the four income ‘levers’ for tax-friendly financial planning in the FIRE journey.
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Effective Tax Rate vs Marginal
- Effective tax rates in retirement are significantly lower than marginal tax rates.
- For example, $350,000 income has an 18% effective tax rate, not 32%.
Capital Gains Tax on After-Tax Accounts
- After-tax accounts incur capital gains tax on dividends and sales.
- Most dividends in a typical portfolio are long-term capital gains, taxed more favorably (about 15%).
Current Taxes are Historically Low
- Effective tax rates today are historically low compared to past decades.
- In the 1970s, effective rates on similar income were almost 50%.