Financial

Two examples of VeriPlan's 8-TAXES % graphic

Subject: Two examples of VeriPlan's 8-TAXES % graphic
by The Skilled Investor on May/25/2007 0:40:42

Two examples of VeriPlan's 8-TAXES % graphic

8-TAXES % graphic: Tax Payments (%/yr)

Below are two examples of the blue-tabbed 8-TAXES % graphic, which come from VeriPlan's "Sue and Sam Saver" tutorial.

You can download a free copy of this VeriPlan tutorial file using this link:

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This 8-TAXES % graphic, which VeriPlan automatically generates for every financial plan, presents the same data as VeriPlan's 7-TAXES $ graphics, except in percentage terms. Taxes in each of the eight categories are automatically calculated annually as a percentage of annual earned income, retirement income, and other income taxed at ordinary income tax rates. (Reinvested asset returns are excluded from this income denominator.)

The 8-TAXES % shows Sue and Sam's projected tax payment percentages broken down into eight categories:
1) Federal marginal rate ordinary income taxes on earned, interest, retirement and other income
2) State and Local marginal rate or flat rate ordinary income taxes on earned, interest, retirement and other income
3) Social Security taxes
4) Medicare taxes
5) Property and real estate taxes
6) Ordinary Federal, State, & Local taxes on mandatory and needed tax-deferred account withdrawals
7) Federal long-term capital gains taxes
8) State and Local ordinary income taxes on long-term capital gains

VeriPlan's tax model assesses marginal tax rates and limits against taxable income and also taxes asset distributions, as required by current tax laws. VeriPlan's sophisticated tax modeling capabilities are fully integrated with all other VeriPlan projection modeling functionality.

For example, note that both of these tax payment projection graphics for Sue and Sam indicate significantly reduced tax rates at age 50. In this particular scenario, Sue and Sam are modeling the impact of Sam being unemployed for six months at age 50. Therefore, these tax graphics automatically reduce income-related taxes at age 50.

In addition, in retirement, Sue and Sam's property and real estate taxes become a much higher percentage of their lesser income. They are not paying more in property taxes, but the percentage of income is much higher, because their taxable income in retirement is much lower. Instead, they are paying a very large portion of their retirement expenses in later years through the liquidation of their investment assets -- much of which is in Roth accounts and not subject to taxation.

The first sample tutorial graphic below shows Sue and Sam's tax payment percentage projection using industry average investment costs. VeriPlan automatically extracted the investment cost information that Sue and Sam provided about their portfolio on VeriPlan's yellow-tabbed assets worksheets. Sue and Sam pay investment costs that are about average for full service retail brokerage customers.

This second tutorial graphic shows Sue and Sam's revised tax payment percentage projection with lower investment costs that they consider to be more reasonable. These lower costs are based on the reasonable investment cost assumptions that they entered into Section 4 of VeriPlan's orange-tabbed "6-COST-EFFECTIVENESS TOOL" worksheet. (All other projection assumptions and data in VeriPlan remain the same in these two scenarios. Only the level of investment costs changes.)

By reducing their investment costs Sue and Sam's financial assets would last much longer and even grow in retirement. As a result, they pay ordinary income taxes on tax-advantaged account withdrawals throughout their retirement. When paying higher industry average investment costs in the first graphic, their assets in traditional tax-deferred accounts are exhausted by about age 78 and the cease paying related taxes.

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