How tax is modelled

Most retirement calculators ask you for one number: your effective tax rate. That number does not exist before the calculation, because what you owe depends on how much you draw and how much you need to draw depends on what you owe.

So this model works it out instead. Every simulated year, in every simulated future, it builds your household’s position for that year and charges your country’s own scales, allowances and thresholds against it. Tax then shows up as its own line in your results, and as its own cost your plan has to fund.

Your country

Each page below lists every figure the model charges in that country, in plain language, with a link to the tax office page it came from and the date we last read it. It also lists everything the model does not do there, including where we know we are wrong and by how much.

Tax is a cost, not a smaller income

Your plan has to fund its tax bill like any other cost, and the bill reaches it in one of two ways. A charge on what you hold, such as a wealth tax or a tax on an assumed yearly return, is an expense: it sits in the same list as your groceries, your mortgage and your care costs. Tax on your income, including on what you withdraw, is taken off that income: the model works out how much more it has to withdraw so that what is left after tax still pays for the year.

The two are arithmetically the same as billing both as expenses, and either way you get one honest tax figure per year that you can look at directly. The year a tax charge is the thing that breaks the plan is visible rather than buried.

One rule about tax: it is never cut. When money is tight and your spending follows the markets, the model trims discretionary spending first, then squeezes essentials down to a floor. It will not pretend you negotiated your tax bill down, because you cannot.

Your results page reports that figure added up across the whole plan, split into what you pay, what the tax system pays back to you, and how much of it your withdrawals added. How to read it.

Kinds of account

Where your savings sit changes your bill more than any rate in any table. During setup you list your accounts one by one, each with its type and balance, and each one is taxed by the law of its own type in your country: a US 401(k) or Roth IRA, a UK pension pot or ISA, Australian super, a Danish ratepension, a Dutch lijfrente. Every country has its own page listing each kind of account and pension the planner offers there, what the model does with it, and the pages we read its rules from:

For the charts and for the withdrawal orders, every type belongs to one of three groups. The group is a summary: a type’s own rules can differ from it in the details, and its country page says how.

Parameter	Default	Meaning
Taxed on the way out	the withdrawal counts	Nothing happens while the money grows. When you take it out, the whole amount is treated as income for that year, or charged at a set rate where the country does that instead. Workplace and personal retirement accounts in most countries work this way.
Tax-free	nothing further	Tax was taken before the money went in, or the law exempts it, so withdrawals cost nothing and are invisible to every threshold. That invisibility is most of the value: money coming out of one of these cannot push the rest of your income up a band.
An ordinary account	as it goes, and on the profit	Taxed on what it pays out each year, or on an assumed yearly return where the country charges that instead, and then on the profit when you sell. Only here does the mix of shares, bonds and cash change what you owe.

Which kind of account your money is in matters more than almost anything else you enter: in the United States the same spending from the same portfolio costs anywhere from nothing to about 11.7 percentage points of your withdrawals depending only on that, and in Australia the spread is larger still. In most countries a new plan starts with a typical split for that country, taken from published figures on what households hold; where no such figures exist it starts with one ordinary account. Either way, replace it with your own accounts. Your statements say which account is which.

The rules an account can carry

Beyond how its withdrawals are taxed, an account’s type can set five more things, and the plan applies each of them:

• An earliest age. Most pension accounts cannot pay out before an age the law sets: 55 in the UK (57 from April 2028), 60 for Australian super, 59 and a half in the United States, an age set by when the scheme started in Denmark. Before it the money still grows but cannot be spent, or comes out only at a charge: an extra 10% on top of income tax for a US 401(k) or IRA, a 25% charge on a UK Lifetime ISA, a 60% charge instead of income tax for a Danish ratepension. Where the charge replaces the account’s normal terms, the plan breaks the account early only if you allow it, and the box is ticked unless you untick it.
• A payout schedule. Some accounts pay out on a timetable instead of on demand: a Danish ratepension over the 10 to 30 years you choose, a Dutch lijfrente in fixed instalments, a Swiss pillar 3a account paid out whole in the year you pick. The plan pays exactly the schedule and moves what you do not need that year into your ordinary account.
• A yearly minimum. From an age the law sets, a minimum share must come out every year whether you need it or not: required minimum distributions in the United States, the RRIF and LIF minimum in Canada, the pension minimum in Australia, the ARF payout in Ireland, the minimum plan of a German pension depot. The required amount leaves first, whatever order you chose, and what you withdraw by choice counts toward it.
• Tax while it is held. Some accounts are taxed every year on what they hold or earn rather than on the way out. Several pay it from inside the account: 15.3% of the return in Danish pensions, 20% inside an Italian pension fund, 15% in Australian super still being built. Those show in your tax but not in your spending. Others are billed to you like any other tax, such as Sweden’s yearly charge on an investment savings account’s value.
• A tax-free part. A quarter of a UK pension pot comes out tax free, as can part of an Irish pension at retirement, and money you paid in after tax comes back first and untaxed from several accounts that hold it.

Your choices about an account (when its payments start, over how many years, how its tax-free part comes out) are made once, with what you know at the start, and the plan keeps them. Making those choices is part of Premium. A free plan uses a default for each, taken from what most people there do or from the law’s own normal case, and the money step shows you which one it used. Facts about an account, such as when it was opened or how much of it you paid in, are asked on every plan. When a year cannot be paid because the money can’t be reached yet, that year counts as one your plan cannot fund, even though the money opens later: the accounts out of reach keep growing, and the plan carries on once they open.

When the plan takes money out, it draws from every account in proportion to what each holds, unless you pick an order. Real retirees often empty one account before touching another, and which order you choose changes the bill, so Premium lets you drain the ordinary account first or the pension account first. A free plan always draws in proportion. In proportion stays the default: it applies no strategy at all, and any order you pick is priced by the same rules, against what each account actually still holds that year. Unless you change it, an account you could only reach at a charge is drawn last, after everything that costs nothing extra.

For a couple, each account belongs to one of you or to both. In the countries that tax partners one by one, that decides whose income a withdrawal is: money from an account in one name is that person’s, and a shared account is split by the share you give. Canada’s pension splitting is applied the way couples usually elect it, with half of each RRIF or LIF payment from 65 on each return. When one of you dies, the survivor takes the accounts over, and in eight countries the gain built up in the deceased’s ordinary investments is wiped for tax at that point; the reference lists them.

A pension that already pays you an income, such as an annuity, a workplace pension or a state pension, is not an account here. It goes in the pension step, where you choose its kind and the plan taxes it by that kind’s rules. Each country’s accounts page lists those kinds too, and says where to enter the things people there commonly hold that are neither.

What we assume you are holding

Two investments tracking the same market can be taxed very differently in the same country. A fund that pays income out is charged as it goes; one that rolls income up is charged later, on the profit when you sell. Individual shares are different again, and in several countries where the fund is registered matters more than what it holds.

This is not a rounding detail. In an investment that rolls income up, nothing is taxable until you sell, so charging annual income on top would tax the same growth twice: for one Finnish worked example it turns a correct 1,800 into 2,358, a third too much. In Greece a European fund pays nothing at all while a fund from a Greek manager carries a yearly charge on its assets, and across our three Greek worked examples that gap runs from 930 to 4,650 a year on the same portfolio.

So every country starts from what its own tax literature says people there typically hold, and your plan is computed on that unless you say otherwise. 9 of the twenty ask you about it in the Detailed view, because their rules genuinely turn on the answer. The rest ask nothing, and that is a finding rather than a gap. Each country’s page says what it assumes.

Dividends get the same treatment. Where a country taxes them yearly, the model charges the dividend part of your stock return in your ordinary investment account every single year, at that country’s own dividend rate, and that income also counts wherever the law counts it: in the United States it enters the income that sets the health insurance credit, and it is charged at the lower qualified rate that broad index funds mostly earn. The assumed dividend yield is 1.6%, the yield of a broad global stock index, and you can change it, or set it to zero for funds that pay nothing out, in the Detailed view of the money step. Most planners either ignore dividend income in their tax numbers or treat all of it at one rate; this one prices it the way your country does.

What the model does not do

Each country’s page carries its own list, in full, with the size of the effect wherever it could be measured. These themes run through all of them:

• Where you live inside your country is asked in 10 countries and not in the rest. Local rates vary inside most of them, and the gap is not small: Finnish municipal rates span 4.7% to 10.9%, Swedish councils 28.93% to 35.65%, and Swiss cantons far more again. Those 10 carry 1,955 jurisdictions between them, so naming yours charges you your own area’s scale. Skip the question and you are charged a stand-in that the planner names on screen. The United States is the one where the list is still growing: a state not yet on it is charged federal tax only, whether you skip or live there, and the results say so. Three countries are still not asked at all: Scotland, France and Norway. Each of their pages says which figure stands in and which way that pushes your answer.
• No optimisation of the choices a tax return offers you. Several countries let you elect between two treatments and take whichever is cheaper. The model picks the branch that is right for a typical retiree’s income range and documents it, rather than solving for the best one.
• Inheritance tax is out of scope. It is a separate system with its own rates, thresholds and authority. Lump sums you enter are assumed to be what actually reaches you.
• Tax before you retire is not modelled. Your expense inputs describe your retirement, not your working-age budget, so the years before retirement use a simplified cash flow. The consequence runs against the plan being flattered: it understates how much a contribution to a retirement account is worth. Charges that fall on your holdings are the exception and are applied throughout, because a Norwegian pays them while still working.
• Couples are modelled where joint assessment exists, but only in the full model. The ranking analysis treats a couple as a single person for speed, so treat its magnitudes as approximate there.

When these numbers go out of date

Tax rules change every year, and more than half of these twenty countries had a change relevant to retirees in the last twelve months alone. Every figure carries the date it was read, on its own line, on its own country’s page.

16 of the twenty are checked against something the tax office itself publishes: its calculator, the rate data that calculator reads, or its published tables. Those checks re-run on a schedule and are compared against the answers committed here. The rest are worked through by hand from the authority’s own rules, and re-read on a cycle.

If a date on a country page is well behind the current tax year, treat that country’s tax line as indicative and the rest of the plan as unaffected: everything else in the model is independent of it.