Do you bother to look at your taxes after filing them? Yes, you pay someone to fill out your tax return, but when it is done, do you ask what to change in the future to keep more of your earnings and forfeit less to Uncle Sam?

Many people believe a dollar saved on their taxes is not worth the same as a dollar of their salary or a dollar of gain in the stock market. They are correct. A dollar saved on your taxes is actually worth more. A dollar of salary or capital gains still has to be taxed before you can spend your share.

Intelligent tax planning and analysis is a neglected component of comprehensive wealth management. Think of tax management like filling cisterns with water. First ensure you are filling those that leak the least. Plugging some of the leaks will allow you to preserve your store of fresh water. And if you are going to be drinking from those cisterns in retirement, you must know that as much as possible of the water you are storing is truly yours.

You can use your completed tax return to estimate how much water you drink every year. In other words, how much do you need to maintain your standard of living? If your standard of living is low, you need less money to secure your retirement. But I’ve seen families whose lifestyles require $200,000 a year that have only saved $1.2 million by the time they retire. With that high of a lifestyle, they will run out of money in the seventh year.

By knowing your annual standard of living, you can calculate how many cisterns you need to fill by any given age. Here’s how to measure your standard of living using your tax return.

First, compute the income that is not reinvested. The two ways of doing this should match. It’s best to compute your income with both methods and then compare them.

Add up all of your sources of income on Form 1040: line 7, Wages, salaries, tips, etc.; line 12, Business income; line 16a, Pensions and annuities; and line 20a, Social Security benefits. The sum is your total income.

The second way to compute your income is to start with line 22, Total income, and then subtract line 8a, Taxable interest, and line 9b, Ordinary dividends. Assume these are part of your investment portfolio and therefore are reinvested and not spent. Finally, a portion of your Social Security is not taxed as part of your total income. Therefore add back in your untaxed Social Security, the difference between lines 20a and 20b.

Either of these calculations should produce approximately the same number. If not, you have to judge if the difference is money you likely spent or put into savings. We are only trying to compute the income you likely spent.

Now that you have a number for income, subtract where your income went other than to support your lifestyle. There are four items to subtract to approximate your standard of living.

First, subtract line 60, Federal taxes. This is not part of your standard of living, and when doing retirement planning, all of your assets should be valued in after-tax dollars. Second, subtract Schedule A, line 5a, State taxes, for the same reason.

Third, compute how much you added to your taxable savings over the year and subtract that number too. In retirement you will not need to add more to your savings, so this is not part of your standard of living. If you have a brokerage account, this number often appears on your end-of-year statement as total net contributions to your portfolio account. You do not need to subtract traditional IRA and 401(k) contributions because the money was taken out before taxes and therefore did not appear as part of your total income on your tax return. You do have to subtract any contributions to your Roth IRA or 401(k) because these were counted as part of your taxable income.

Finally, subtract any unusually high amounts of charitable giving. If you are living off half your take-home pay and giving the other half to charity, your standard of living is only half of your income. In retirement you may still be as charitably inclined, but don’t count it as part of your standard of living.

Your total income minus these four factors should approximate your standard of living. If you keep a budget, you can cross-check this number, bearing in mind that your budget might include taxes and charitable giving you need to subtract. Understanding the level of your standard of living is the single most important cash flow number for retirement projections.

Your standard of living combined with a net worth statement helps you measure your progress toward retirement. First, compute your after-tax net worth. Discount your pretax investment accounts by counting them at only 70% of their value. Assume you will have to pay about 30% in state and federal taxes when you withdraw the money in retirement. Add that to your taxable and Roth accounts to compute your after-tax net worth.

Take your after-tax net worth and divide it by your standard of living. The result shows you how many times your annual standard of living you have amassed in savings. If you are younger than 40, the number probably comes to less than five, which is adequate for now.

By age 45, you should be worth about seven times your annual spending. At age 65 you can only withdraw 4.36% of your portfolio to maintain your lifestyle. In other words, to keep the same standard of living, you will need about 23 times what you spend annually to retire at age 65.

More sophisticated retirement planning includes refining the difference between taxable, tax-deferred and Roth accounts as well as Social Security estimates and defined benefit plans, but the method described here will approximate your progress. This table shows by what age you should have saved different multiples of your annual spending.

Age	Annual Spending Saved	Age	Annual Spending Saved
26	1	53	11
31	2	54	12
34	3	55	13
38	4	57	14
41	5	58	15
43	6	59	16
45	7	60	17
47	8	61	18
49	9	62	19
51	10	63	20

If your net worth is higher, congratulations! You may be able to retire earlier than 65. Want to retire younger? Try lowering your standard of living. If you can live off 50% of your take-home pay, you don’t have to save as much.

This is just one of many things to look for on your completed tax return. Other items provide more than just information; they offer tax savings opportunities.

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