How to use Step 9

According to the Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance (OASI) Trust Fund, the program's financial reserves are projected to become depleted in 2033. Under current law, Social Security is a pay-as-you-go system; if the trust fund reserves are exhausted, the program cannot pay out more in benefits than it collects through ongoing payroll taxes. The Social Security Administration estimates that upon depletion, continuing tax revenues will be sufficient to pay approximately 77% of the scheduled benefits, resulting in an automatic, across-the-board reduction of roughly 23% for all beneficiaries.

It is important to recognize that this represents a legislative possibility based on current statutes, rather than a certainty, as Congress has historical precedent for intervening to restore solvency before depletion occurs. Use the Yes/No toggle on this page to model the potential impact on your personal financial plan if Social Security benefits are reduced.

How This Model Calculates Withdrawals & Taxes

Step 1 — Calculate Your Monthly Income Gap

Each month the model compares your target retirement income against your guaranteed fixed income — Social Security, pension, and any other income you entered. The shortfall is your income gap.

If your fixed income already covers your target, no account withdrawals are needed that month.

Step 2 — Draw from Non-Qualified (After-Tax) Accounts First

When a gap exists, the model first draws from your non-qualified (after-tax) accounts — brokerage accounts (cost basis / principal), savings accounts, and CDs.

No gross-up is needed. Every dollar withdrawn is a dollar of spending cash with no income-tax consequence. Spending these accounts first preserves your tax-advantaged balances for longer growth.

Step 3 — Draw from Qualified (Pre-Tax) Accounts Second

Once non-qualified accounts are depleted — or if you have no non-qualified accounts — the model draws from your qualified (pre-tax) accounts: Traditional 401(k), Traditional IRA, 403(b), SEP, and similar accounts.

Because these withdrawals are taxed as ordinary income, the model draws a larger amount than the gap and sets aside the tax portion — so your net cash after taxes equals what you need. This is called a “gross-up.”

Step 4 — Draw from Roth Accounts Last

Only after both non-qualified and qualified balances are depleted does the model draw from your Roth accounts — Roth IRA, Roth 401(k), Roth 403(b).

Roth withdrawals are completely tax-free and Roth accounts are not subject to Required Minimum Distributions (RMDs). Preserving them as long as possible maximizes tax-free growth and gives you the most flexibility in later retirement.

Annual Tax Calculation

At the end of each year the model calculates your estimated federal and state income tax. Taxable income consists of:

• All qualified (pre-tax) account withdrawals for the year
• Pension income
• Other fixed income
• The taxable portion of your Social Security benefit

Non-qualified and Roth withdrawals are not included in taxable income.

Social Security Taxability: The IRS uses a “provisional income” test — half of your annual Social Security benefit plus all other income. Above certain thresholds, up to 85% of your Social Security benefit becomes taxable income. Below the lower threshold, none of it is taxable.

Federal tax is applied using 2026 brackets. State tax is applied at the flat rate you provided. The combined tax is deducted from your account balance each December.

The Tax Cliff: Why Your Tax Bill May Drop Sharply at a Certain Age

If you have qualified (pre-tax) accounts alongside non-qualified or Roth accounts, you may notice a significant drop in your estimated annual tax bill at a specific age. This is not an error — it reflects the moment your qualified (pre-tax) account balance reaches $0. After that point, all withdrawals come from your tax-free accounts (non-qualified or Roth). Since those withdrawals do not count as taxable income, your adjusted gross income falls sharply, and your tax bill can drop dramatically or disappear entirely.

Understanding Your Age 100 Ledger

The Ledger provides a year-by-year (or month-by-month) breakdown of your financial future, divided into two primary sections:

1. Asset Balances (Left Side)

This section tracks the health of your savings, including 401(k)s, IRAs, and brokerage accounts.

• Growth: See how your balances increase based on your estimated rates of return.
• Drawdowns: Visualize how withdrawals reduce your balances over time to fund your lifestyle.

2. Income Sources (Right Side)

This section summarizes where your "spending money" comes from each period.

• Fixed Income: Guaranteed amounts from Social Security and Pensions.
• Variable Income: Distributions taken from your retirement assets to cover any remaining expenses.
• Total Available: The final sum of all sources, showing exactly how much cash flow is available to you.