Should You Include Taxes in Your FIRE Number? Key Taiwan and U.S. Differences

Bottom line first: taxes belong in the FIRE model, but not always inside the headline FIRE number

The common FIRE shortcut is:

FIRE number = annual spending × 25

That shortcut is useful for orientation. It is not a complete retirement-income model.

What you can actually spend in retirement is closer to:

After-tax spendable cash = withdrawals - taxes - transaction costs - required cash reserves

So the real question is not:

• Should taxes be included in the FIRE number?

Yes, they should.

The better question is:

• Which taxes belong in annual spending?
• Which taxes belong in the withdrawal plan?
• Which taxes belong in special scenarios such as relocation, taxable account sales, foreign assets, or real estate?

A practical model separates taxes into three layers:

1. Everyday taxes and living costs go into annual spending.
2. Investment taxes and account-specific withdrawal taxes go into the withdrawal model.
3. Real estate, cross-border, state-tax, and high-income taxes go into stress tests.

If you use annual spending times 25 but ignore after-tax cash flow, the FIRE number may look clean while the retirement plan remains fragile.

Separate living taxes from withdrawal taxes

Many FIRE calculators mix very different taxes together:

• sales tax already embedded in spending
• dividend tax
• interest income tax
• capital gains tax
• state income tax
• retirement account withdrawals
• real estate taxes and sale costs
• foreign withholding and foreign tax credits

In a FIRE model, these should not all sit in the same place.

This is why a useful FIRE plan needs an after-tax withdrawal layer.

If you do not yet have a baseline FIRE estimate, start with the Fire Path calculator and methodology, then add the tax layer described here.

Why U.S. FIRE planning is especially sensitive to after-tax withdrawals

U.S. households often hold FIRE assets across several account types:

• taxable brokerage accounts
• 401(k) plans
• Traditional IRAs
• Roth IRAs
• HSAs
• bank accounts and Treasury bills
• real estate or rental properties

The same $1,000,000 portfolio can create very different spendable cash depending on where the assets sit.

For example:

That is the core U.S. issue:

FIRE is not only about total assets. It is about which tax bucket produces the next dollar of spendable cash.

This is also why a U.S. plan should not copy a Taiwan-style assumption that public-market capital gains are usually not the main income-tax problem. In the U.S., taxable account sales, qualified dividends, ordinary dividends, interest, retirement account withdrawals, state taxes, and the Net Investment Income Tax can all change the withdrawal path.

The Taiwan contrast: why the same portfolio logic does not transfer cleanly

This article is written for U.S. households, but Taiwan is a useful contrast because many FIRE discussions compare tax systems too casually.

In a simplified Taiwan-oriented model, an investor may focus on:

• securities transaction tax and broker fees when selling local securities
• dividend taxation options for resident individuals
• overseas income and individual basic tax calculations
• real estate transaction tax if property becomes part of the FIRE plan

That is different from the U.S. structure, where the investor often has to model:

• long-term versus short-term capital gains
• qualified versus ordinary dividends
• ordinary income from retirement account withdrawals
• federal and state tax interaction
• NIIT exposure for higher-income households
• account sequencing across taxable, tax-deferred, and Roth assets

The practical lesson is simple:

Do not use another country's tax shortcut as your own FIRE assumption.

If you are a U.S. household, build a U.S. after-tax withdrawal model. If you are a Taiwan household, build a Taiwan model around local securities, dividends, overseas income, and property decisions.

A U.S. household example: pre-tax FIRE versus after-tax FIRE

Assume Household A:

• couple age: 42
• annual core spending: $84,000
• target withdrawal rate: 4%
• simple FIRE number: $2.1 million
• asset mix: taxable brokerage 45%, Traditional 401(k) / IRA 35%, Roth 10%, cash and bonds 10%

The shortcut says:

$84,000 × 25 = $2,100,000

But retirement cash may come from:

• selling appreciated taxable assets
• dividends and interest
• Traditional account withdrawals
• Roth withdrawals later
• cash reserves during down markets

So the more useful question is:

How much gross withdrawal is needed to fund $84,000 of after-tax spending?

Suppose Household A uses this planning estimate:

The household may need more than $84,000 in gross withdrawals to produce$84,000 of spendable cash.

That does not automatically mean the FIRE number must become:

$95,000 × 25 = $2,375,000

Some taxes depend on sequencing, cost basis, state, and taxable income.

The better model is:

1. keep the core spending target at $84,000
2. estimate after-tax cash by source
3. decide which accounts fund the first 5-10 retirement years
4. run conservative tax buffers for high-income or high-gain years
5. update the plan annually

That is more useful than adding one flat tax percentage to every future expense.

A simple after-tax FIRE formula

For practical planning, use this version:

Required gross withdrawal =
after-tax spending need
+ estimated annual tax on withdrawals
+ transaction costs
+ state or location tax buffer
+ special scenario buffer

Then compare it with the portfolio:

After-tax withdrawal rate =
required gross withdrawal / investable assets

Example:

• after-tax spending need: $84,000
• estimated federal tax on withdrawals: $7,000
• state tax buffer: $3,000
• transaction and planning buffer: $1,000
• required gross withdrawal: $95,000
• investable assets: $2,100,000

$95,000 / $2,100,000 = 4.52%

That tells you something important:

The household may look like it has a 4% plan on a spending basis, but closer to a 4.5% plan on a gross-withdrawal basis.

That does not mean FIRE is impossible. It means the tax layer must be managed.

Possible adjustments:

• retire with a larger buffer
• reduce fixed spending
• use lower-tax years strategically
• sequence taxable, tax-deferred, and Roth withdrawals more carefully
• consider state-tax impact before relocation
• use part-time income for the first phase

For a broader review system, pair this with Annual FIRE Summary Template: Turn Optionality Into Trackable Metrics.

The annual FIRE tax checklist

Review these questions every year:

1. Did the household's tax residency or state of residence change?
2. Is the annual spending number already after tax, or is it only a lifestyle estimate?
3. Which assets will fund the first five retirement years?
4. How much taxable account gain is embedded in the portfolio?
5. Are dividends qualified, ordinary, or mixed?
6. How much income would come from Traditional 401(k) or IRA withdrawals?
7. Could the household trigger NIIT or higher capital gains rates in certain years?
8. Does the plan rely on real estate sales, rental income, or relocation?
9. Does health insurance cost depend on taxable income assumptions?
10. Is the after-tax withdrawal rate still within a range the household can tolerate?

If the answer to question 10 is no, do not immediately abandon the plan.

Usually, you have several levers:

• raise the target portfolio
• change withdrawal sequencing
• delay full retirement
• use part-time income
• reduce spending in the first retirement years
• relocate only after modeling state taxes and healthcare costs

For a deeper sensitivity-review process, read Annual FIRE Recalculation: Return, Inflation, and Withdrawal-Rate Sensitivity Examples.

When taxes can materially change the FIRE number

For some households, taxes are a small planning buffer.

For others, they change the retirement strategy.

Taxes deserve more attention if:

• most assets are in Traditional pre-tax retirement accounts
• the taxable account has large unrealized gains
• dividends and interest are a major income source
• the household lives in a high-tax state
• retirement includes rental property sales
• income may be high enough for NIIT
• the plan includes cross-border assets or moving countries
• health insurance subsidies depend on taxable income
• Roth conversions or required minimum distributions are part of the plan

In those cases, the right question is not:

• What is my FIRE number?

It is:

• What is my tax-efficient path for turning assets into spendable cash?

That path can be more important than the headline number.

Conclusion: track spendable cash, not only portfolio value

Taxes should be part of the FIRE model.

But they should be modeled in the right layer.

Use three layers:

Layer 1: annual spending
Layer 2: after-tax withdrawal plan
Layer 3: special tax and relocation scenarios

Once you shift from pre-tax assets to after-tax spendable cash, the plan may look less elegant.

It will also be more realistic.

That is the point.

FIRE is not only reaching a number. It is building a system that can reliably turn assets into life choices.

References

• IRS, Topic no. 409, Capital gains and losses: https://www.irs.gov/taxtopics/tc409
• IRS, Topic no. 404, Dividends and other corporate distributions: https://www.irs.gov/taxtopics/tc404
• IRS, Publication 550, Investment Income and Expenses: https://www.irs.gov/publications/p550
• IRS, Net Investment Income Tax: https://www.irs.gov/niit
• Taiwan Ministry of Finance Tax Portal, dividend income tax options: https://www.etax.nat.gov.tw/etwmain/tax-info/understanding/tax-q-and-a/national/individual-income-tax/taxation-scope/which-income/zZzO3re
• Taiwan Ministry of Finance Tax Portal, overseas income and individual basic tax: https://www.etax.nat.gov.tw/etwmain/tax-info/understanding/tax-q-and-a/national/individual-income-tax/basic-tax-question/oversea-income/awYgOG9
• Taiwan Ministry of Finance Tax Portal, securities transaction tax scope: https://www.etax.nat.gov.tw/etwmain/tax-info/understanding/tax-q-and-a/national/securities-transaction-tax/taxation-scope/DjGv0pY

Scope and Freshness

• Scope: U.S. household FIRE planning, after-tax withdrawal modeling, and high-level Taiwan versus U.S. tax-system differences
• Currency: U.S. dollars, with Taiwan references used only for comparison
• Last updated: 2026-05-06
• This article is for education only and is not investment, tax, legal, insurance, or retirement-planning advice. Tax rules depend on year, residency, account type, income level, state, and household filing status. Consult a qualified tax professional before making retirement withdrawal decisions.

Related reading: Annual FIRE Summary Template: Turn Optionality Into Trackable Metrics, How Do You Quantify Financial Security? Build a Household Safety Dashboard, Annual FIRE Recalculation: Return, Inflation, and Withdrawal-Rate Sensitivity Examples, Will Buying a Home Delay Your FIRE Timeline? Is Renting Really More Flexible?, Fire Path calculator and methodology