Effective Tax Rate - It Changes Each Year Doesn't It?

[Old Mike]

I've been playing around with the income tax rate a bit in an FRP scenario built for my co-worker. Since 95% of his nest egg is in a tax deferred account, I found that even small changes in the income tax field tend to have a large impact on his success rate. But then I started playing around with an online tax calculator and it appears that his effective tax rate changes each year. With that going on, I'm not sure what income tax rate to use in FRP.

Any idea how to average the effective tax rate over his 30 year horizon? Without a reasonable tax estimate, I'm not sure what to tell him.

[jimr]

The only thing I can think of is to use the upper table in additional inputs to create 5 or 6 tax rate entries that cover maybe 5 years each. So each would be set up with an end year that's 5 years after the start year and a rate that's the average expected over the 5 years the entry covers.

I suggested 5 year ranges, but you could just as easily make the case for 3 year ranges or 10 year ranges, depending on how much work you want to do entering the data.

Jim

[Old Mike]

Thank you Jim. Much appreciated.