Question

Suppose you could defer capital gains tax to the last year of your retirement (Spreadsheet 21.9). Would it be worthwhile given the progressivity of the tax code.

Short answer

The real consumption starts at $46808 and ends at $43955. On deferring the tax to the last year of retirement, real consumption is fixed at $46190. This implies that this option is preferable due to the tax code's progressivity.

Step-by-step solution

Definition of tax code

A federal government document dealing with regulations of businesses that must be followed by remitting a percentage of their income to the government is called a tax code.

Comparison of the effect

Retirement Years	Income growth	Rate of inflation	Exemption Now	Tax rate	Savings rate	ROR
25	0.07	0.03	10000	in Table 21.1	0.15	0.07	0.0388
Age	Income	Defactor	Exemption	Taxes	Savings	Cumulative savings	rConsumption
30	50,000	1.00	10,000.00	8,000	6300	6300	35,700
35	70,128	1.16	11,593.00	11,764	9370	52995	42,262
45	1,37,952	1.56	15,580.00	28,922	19707	278528	57,333
55	2,71,372	2.09	20,938.00	64,661	41143	8,83,993	79,076
65	5,33,829	2.81	28,139.00	1,45,999	92460	24,32,049	1,04,420
	74,45,673		5,19,944.00	17,52,425	11,63,478	Retirement annuity	49,153

Retirement	Nom withdraw	Deflator	Cum Cap gains	Exemptions	Taxes	Fund left	rconsumption	r Saving	Adj rConsumption
66	142460	2.9	1414494	28,983.00	0	2435512	49153	2964	46190
70	160340	3.26	1997710	32,620.00	0	2404847	49153	2964	46190
75	185879	3.78	2702767	37,816.00	0	2233096	49153	2964	46190
80	215484	4.38	3332479	43,839.00	0	1846348	49153	2964	46190
85	249805	5.08	3811381	50,821.00	0	1146895	49153	2964	46190
86	257299	5.23	3880195	52,346.00	0	958409	49153	2964	46190
87	265018	5.39	3937700	53,917.00	0	750895	49153	2964	46190
88	272969	5.55	3982753	55,534.00	0	522980	49153	2964	46190
89	281158	5.72	4014132	57,200.00	0	273201	49153	2964	46190
90	289593	5.89	4030524	58,916.00	0	0	49153	2964	46190
				10,56,691.00	629410

From the spreadsheet it is evident that the real consumption starts at $46808 and ends at $43955. On deferring the tax to the last year of retirement, real consumption is fixed at $46190. This implies that this option is preferable due to the progressivity of tax code.