Income from assets - retirement accounts (how much, calculated, taxes)

[Voltaire1122]

Hi,

Anyone who has been through the process lately who can share how income from assets is currently being calculated for things like a 401(k)? Based on the handbook, it mentions taking .06% of the total and adding it to the annual income... but that amount sounds ridiculously low even for someone at/near the asset limit. Is the .006 outdated or this is really what it is?

(I know I just said it sounds ridiculously low, but if it were doubled to .12% instead of .06% I'd almost not qualify lol).

Thanks,

[randomperson2]

It's correct.

[TechGromit]

This is really going to depend on how much you have in your 401k at the time of retirement, If say you have 500k in your 401k, taking 6 precent out a year is only going to net you 30k before taxes. Assuming your getting the average social security benefit of $1,700 a month and your single, that $20,400 a year, the 30k will be in the 12% tax bracket, netting you $26,400 a year, or $3,900 a month. The average monthly income around $4,600, which leave you $700 short a month, assuming the same expenses, so yes, you will need a bigger withdrawal from your 401k to make up the difference.

If you have 2 million in your 401k at retirement, the numbers really change, 6 percent is 120k a year, after your $20,400 a year social security benefit, the first $33,700 is taxed at 12%, giving you $29,656, the next 50k is taxed at 22%, giving you 39k after taxes, and the last 37k is taxed at 24% giving you 28k, total is $117k a year, or $9,750 a month, more than enough to pay for average expenses and maybe even enjoy retirement.

In addition, if you have a next egg of 2 million when you retire, you more likely to have a larger social security benefit due to higher wages over the course of your life, The max benefits are $3,627 a month, that's $43,500 a year, which give you an even greater income to enjoy in retirement.