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How Much Taxes Will Retirees Owe on Their Retirement Income?

To evaluate their retirement resources, households approaching retirement will examine their
Social Security statements, defined benefit pensions, defined contribution balances, and other
financial assets. However, many households may forget that not all of these resources belong to
them; they will need to pay some portion to federal and state government in taxes. It is unclear,
however, just how large the tax burden is for the typical retired household and for households
with different income levels. This project aims to shed light on the tax burdens that retirees face
by estimating lifetime taxes for a group of recently retired households. The project uses data
from the Health and Retirement Study (HRS) linked to administrative earnings to determine
Social Security benefits and administrative records on state of residence to estimate state tax
liabilities. Income is then projected over the expected retirement of each household. Federal and
state taxes, are estimated with TAXSIM, for each household on its reported and projected income.

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