nbsp 3: What about taxes and inflation?
The Snapshot doesn’t factor income tax into its calculations because everyone’s tax situation can vary. It does subtract Medicare and Social Security taxes, because everyone pays the same amount. These taxes are typically deducted from paychecks automatically (along with income tax). The Snapshot assumes that all savings are going into tax-deferred accounts, which may or may not be applicable to your situation. If most of your retirement savings are in tax-deferred accounts, you should keep in mind that you’ll still need to pay tax on those funds as you withdraw them. If most of your savings are in accounts that don’t offer tax advantages, you may be closer to your goals than it appears on your Snapshot, because you’ve already paid taxes on those savings. All of the Snapshot’s calculations are adjusted for inflation, but everything is shown to you in today’s dollars. So if your retirement income equals your current adjusted income, your standard of living would be the same.
