Taxes can play a big role in how much money you have to spend in retirement.
As a part of its financial literacy program, the American Institute of Certified Public Accountants, or AICPA, has released a simple calculator available at TotalTaxInsights.org that helps people figure out the cost of taxes where they live. It's a great retirement planning tool.
The designer of the calculator, Ed Karl, AICPA vice president - taxation, says, "Retirees, especially retirees living on fixed incomes, need a better handle on taxes and how being aware of all the levels of taxation can help them maximize their spendable income."
The calculator doesn't just look at the usual federal and state income taxes; it includes local sales and property tax rates, as well as special taxes on utilities, telephones, beer, cigarettes, gasoline, etc. The rates are all broken down by county. Karl said when he embarked on this project one of the things that surprised him was how much rates could differ from one county to the other. "Taxes, especially property taxes, can vary dramatically," he says.
Some calculators assume you'd consider moving when you retire, but Karl thinks that you don't have to move to take advantage of the information available in the AICPA calculator. If it is cheaper to buy clothes or a case of beer in the next county, then do your shopping there, he suggests.
To use this calculator, you will need to enter, at minimum, the county and/or city where you live, marital status, federal adjusted gross income and how many dependents you have. To get more information, you'll need to add more monthly budget details, including how much you pay for electricity, natural gas, cable, land-line phone, cellphone, gasoline, cigarettes, food, clothing and alcoholic beverages. In the interest of privacy, the calculator doesn't retain this information, so be sure to write it down elsewhere if you think you might want to use the calculator again.
Once you've filled in the form, you can compare counties all over the country -- the one where you live to the one next door to you or the one in Florida where you are thinking of retiring. It can be an enlightening exercise. As Karl says, "This calculator shows that taxes are far more than an April 15 phenomenon."