I just thought of something that I think would be fun to track as it will make sure I don’t overestimate how big my retirement nest egg really is. I currently have a mix of Roth IRA, Roth 401k, and Traditional 401k retirement accounts that combined together give me that number at the top right corner of my blog. One thing that people often forget when saving for retirement is taxes (the other is inflation). You see any money that is stored in traditional 401k or traditional IRAs you need to pay taxes on when you withdraw it. This means that the government actually owns part of my retirement nestegg.
While I have no way to predict, know, or guesstimate what future tax rates will be when I decide to retire, I can however calculate how much of my retirement nest egg is going to be subject to taxes when I withdraw it. Right now I’m guessing this number will be pretty good, but because I just switched jobs and my new employer does not offer a Roth 401k, I will be subjecting my portfolio to more tax risk down the road (yeah I know the tax law could change so drastically as to make Roth accounts less appealing than traditional accounts and I advocate taking advantage of both accounts, but in my situation I’m putting my money on the Roth being a better deal).
So anyway let’s calculate the tax liability percentage of my retirement nest egg based on last month’s report.
Roth accounts total – $35,116.52
Traditional 401k total – $11,695.58
Total Nestegg = $46,812.10
$11,695.58 / $46,812.10 = 24.98%
This means that about one fourth of my nest egg will be subject to withdrawal taxes