Do you know what the IRS standard deduction is and how it fits into retirement planning? First the definition of the standard deduction from the IRS:
The standard deduction is a specific dollar amount that reduces the amount of income on which you’re taxed. Your standard deduction consists of the sum of the basic standard deduction and any additional standard deduction amounts for age and/or blindness. In general, the standard deduction is adjusted each year for inflation and varies according to your filing status, whether you’re 65 or older and/or blind, and whether another taxpayer can claim you as a dependent. The standard deduction isn’t available to certain taxpayers. You can’t take the standard deduction if you itemize your deductions. Refer to Topic No. 501, Should I Itemize? for more information.
source: IRS.gov
For most people the IRS standard deduction is the largest “tax break” they will get when filing taxes. I created the table below to try to figure out how the standard deduction will grow over time. The accurate data is from 1970 thru 2024. I used the average growth of the standard deduction over this period of time to extrapolate the standard deduction through 2052. The average change for the standard deduction, in case you are wondering, is about 5% over a long term period.
| Year | Single | Head of Household | Married |
|---|---|---|---|
| 1970 | 1100 | 1100 | 1100 |
| 1971 | 1050 | 1050 | 1050 |
| 1972 | 1300 | 1300 | 1300 |
| 1973 | 1300 | 1300 | 1300 |
| 1974 | 1300 | 1300 | 1300 |
| 1975 | 1300 | 1300 | 1900 |
| 1976 | 1700 | 1700 | 2100 |
| 1977 | 2200 | 2200 | 3200 |
| 1978 | 2200 | 2200 | 3200 |
| 1979 | 2300 | 2300 | 3400 |
| 1980 | 2300 | 2300 | 3400 |
| 1981 | 2300 | 2300 | 3400 |
| 1982 | 2300 | 2300 | 3400 |
| 1983 | 2300 | 2300 | 3400 |
| 1984 | 2300 | 2300 | 3400 |
| 1985 | 2400 | 2400 | 3550 |
| 1986 | 2480 | 2480 | 3670 |
| 1987 | 2540 | 2540 | 3760 |
| 1988 | 3000 | 4400 | 5000 |
| 1989 | 3100 | 4550 | 5200 |
| 1990 | 3250 | 4750 | 5450 |
| 1991 | 3400 | 5000 | 5700 |
| 1992 | 3600 | 5250 | 6000 |
| 1993 | 3700 | 5450 | 6200 |
| 1994 | 3800 | 5600 | 6350 |
| 1995 | 3900 | 5750 | 6550 |
| 1996 | 4000 | 5900 | 6700 |
| 1997 | 4150 | 6050 | 6900 |
| 1998 | 4250 | 6250 | 7100 |
| 1999 | 4300 | 6350 | 7200 |
| 2000 | 4400 | 6450 | 7350 |
| 2001 | 4550 | 6650 | 7600 |
| 2002 | 4700 | 6900 | 7850 |
| 2003 | 4750 | 7000 | 9500 |
| 2004 | 4850 | 7150 | 9700 |
| 2005 | 5000 | 7300 | 10000 |
| 2006 | 5150 | 7550 | 10300 |
| 2007 | 5350 | 7850 | 10700 |
| 2008 | 5450 | 8000 | 10900 |
| 2009 | 5700 | 8350 | 11400 |
| 2010 | 5700 | 8400 | 11400 |
| 2011 | 5800 | 8500 | 11600 |
| 2012 | 5950 | 8700 | 11900 |
| 2013 | 6100 | 8950 | 12200 |
| 2014 | 6200 | 9100 | 12400 |
| 2015 | 6300 | 9250 | 12600 |
| 2016 | 6300 | 9300 | 12600 |
| 2017 | 6350 | 9350 | 12700 |
| 2018 | 12000 | 18000 | 24000 |
| 2019 | 12200 | 18350 | 24400 |
| 2020 | 12400 | 18650 | 24800 |
| 2021 | 12550 | 18800 | 25100 |
| 2022 | 12950 | 19400 | 25900 |
| 2023 | 13850 | 20800 | 27700 |
| 2024 | 14600 | 21900 | 29200 |
| 2025 | 15213.2 | 22885.5 | 30660 |
| 2026 | 15852.1544 | 23915.3475 | 32193 |
| 2027 | 16517.9448848 | 24991.5381375 | 33802.65 |
| 2028 | 17211.698569962 | 26116.157353687 | 35492.7825 |
| 2029 | 17934.5899099 | 27291.384434603 | 37267.421625 |
| 2030 | 18687.842686116 | 28519.496734161 | 39130.79270625 |
| 2031 | 19472.732078933 | 29802.874087198 | 41087.332341563 |
| 2032 | 20290.586826248 | 31144.003421122 | 43141.698958641 |
| 2033 | 21142.79147295 | 32545.483575072 | 45298.783906573 |
| 2034 | 22030.788714814 | 34010.03033595 | 47563.723101901 |
| 2035 | 22956.081840836 | 35540.481701068 | 49941.909256996 |
| 2036 | 23920.237278151 | 37139.803377616 | 52439.004719846 |
| 2037 | 24924.887243834 | 38811.094529609 | 55060.954955838 |
| 2038 | 25971.732508075 | 40557.593783441 | 57814.00270363 |
| 2039 | 27062.545273414 | 42382.685503696 | 60704.702838812 |
| 2040 | 28199.172174897 | 44289.906351363 | 63739.937980753 |
| 2041 | 29383.537406243 | 46282.952137174 | 66926.93487979 |
| 2042 | 30617.645977305 | 48365.684983347 | 70273.28162378 |
| 2043 | 31903.587108352 | 50542.140807597 | 73786.945704969 |
| 2044 | 33243.537766903 | 52816.537143939 | 77476.292990217 |
| 2045 | 34639.766353113 | 55193.281315416 | 81350.107639728 |
| 2046 | 36094.636539944 | 57676.97897461 | 85417.613021714 |
| 2047 | 37610.611274621 | 60272.443028468 | 89688.4936728 |
| 2048 | 39190.256948155 | 62984.702964749 | 94172.91835644 |
| 2049 | 40836.247739978 | 65819.014598162 | 98881.564274262 |
| 2050 | 42551.370145057 | 68780.87025508 | 103825.64248798 |
| 2051 | 44338.527691149 | 71876.009416558 | 109016.92461237 |
| 2052 | 46200.745854178 | 75110.429840303 | 114467.77084299 |
If historical growth of the standard deduction remains consistent then the standard deduction in 2052 will be about $115,000 for a married couple! Sounds great right? Well no because that would mean that the average wage would need to be about $2.3 million dollars per year. When I did these calculations the song “Everything Zen” by Bush immediately came to mind….”Raindogs howl for the century
A million dollars a steak…”
In doing all this math, it does start becoming readily apparent that this monetary paradigm is not sustainable. I strongly believe something is going to break which is why I would encourage people not to invest all their money in paper assets like stocks and bonds. I choose to go the route of rental properties because people will always need a place to live and pay rent but I also do own stocks and bonds and a few other things.
So putting our Steps together so far:
- Total all retirement account money
- Estimate how much social security will provide
- Estimate what the IRS standard deduction might be during my retirement years.
With our standard deduction extrapolations we can now move onto the next step: IRS Tax Brackets.
Click here for Step 4.