What financial factor is often neglected when estimating retirement income needs?

When estimating retirement income needs, the factor of income tax payable is crucial yet often neglected. This is because retirees may underestimate the impact that taxes can have on their net income during retirement. Many retirees rely on fixed income sources such as pensions and withdrawals from retirement accounts, which are typically subject to taxation. Failing to consider the taxes that will be levied on these income sources can lead to a significant shortfall in the actual income available for living expenses, thereby affecting the retiree's standard of living.

Understanding the potential tax liabilities is essential for retirees to create a realistic and sustainable retirement plan. This includes knowing the tax implications of different income streams—whether they are from Registered Retirement Savings Plans (RRSPs), pensions, or other investments. By incorporating income tax considerations into their planning, retirees can ensure that they are adequately prepared to meet their ongoing expenses without running out of funds prematurely.