What assumptions are made with retirement income?

We adjust your projected retirement income by inflation, so the projection reflects the purchasing power of current dollars. We project your retirement income from three sources: personal savings, Social Security benefits and other sources of income. We also adjust your projected retirement income for federal and state taxes as well as long term capital gains taxes so that the value reflects an after-tax amount.

Projection of Savings: We project the value of each of your investment accounts, including planned contributions to those accounts from now until the time of retirement. Projections assume that contributions increase over time at the same rate as inflation. During the retirement period, we assume you can use the following account types to obtain retirement income: 401(k), 403(b), 401(a), Thrift Savings Plan, 457(b), Traditional IRA, SIMPLE IRA, Other Non-Taxable Brokerage Accounts, SEP IRA, Depository Accounts, Checking Accounts, Savings Accounts, Roth 401(k), Roth IRA, Joint Taxable Accounts, Personal Taxable Accounts, Joint Brokerage Accounts, Individual Taxable Accounts, Taxable Brokerage Accounts, HSAs, and Trust Accounts.

We estimate whether your target retirement spending can be obtained using even distributions over time (inflation-adjusted) from each of your accounts. Those distributions might or might not be optimal in your personal case and they are used only as a conservative estimate of retirement income.

If we find that those distributions over all your accounts are not sufficient to achieve your target retirement spending, then your projected retirement income is composed of the after tax value of your projected monthly distributions, your projected Social Security benefit and the monthly income you report from other sources.

If we find that distributions over all your accounts would be more than sufficient to achieve your target retirement spending, we assume you withdraw only the amount you need on top of Social Security benefits and other income retirement income you report to expect.

We assume withdrawals from after-tax investment accounts like Roth IRAs are not subject to income tax, while withdrawals from pre-tax accounts, as well as other sources of income like Social Security or other retirement income you report to expect, are subject to income tax.

We also assume that Social Security benefits are subject to income taxes and we conservatively assume the entirety of taxable investments are subject to long-term capital gains.

We compute your tax bill assuming you continue to live in your current state of residency and you continue to file taxes under your current reported filing status. We also assume the use of standard deductions and exemptions in all tax bill estimates. We assume deductions change over time with inflation as well as tax brackets, but we assume Federal and State income tax rates remain constant over the projected period.

For details on our Social Security benefit estimates see related Help Center article.

For more details on our methodology, please log into your account and review the Path disclosures.