Taxes After Retirement


by Christopher E. Mediate

When you retire, your regular paycheck stops, but unfortunately, your tax obligations do not. And that really stinks – after all, you already ran the race! You played the game, what more do they want? Well, the answer to that question ends up falling on the various post-retirement income decisions you might make, which is why It’s important to consider taxes in your retirement planning to help ensure that you have enough money to live comfortably. Here are some strategies to keep in mind as you prepare your finances for retirement.

First and foremost, it’s important to determine your tax bracket. Just like during your working years, your tax bracket in retirement is based on your filing status and adjusted gross income. The IRS adjusts income tax rates to account for inflation, and tax reform legislation can also change the rates.

It’s also crucial to consider how your income will be taxed. Traditional IRAs and 401ks are taxed like ordinary income, and you may face penalties if you don’t take the required minimum distribution. Social Security is another income source that may be taxed if your provisional income exceeds a certain threshold based on your filing status. Additionally, income from interest, dividends, or gains on an investment sale can also be subject to taxes.

To mitigate taxes in retirement, there are several options to consider. One option is to move to a more tax-friendly state. When you are no longer tied geographically to where your job is, it could be worth relocating to a place with a lower cost of living and a more favorable tax climate. Another option is to invest in tax-exempt or tax-friendly investments, such as municipal bonds. You can also consider Roth accounts that offer tax-free distributions upon retirement. Finally, developing a withdrawal strategy that includes your required minimum distributions can also help you manage your tax liability in retirement.

In summary, taxes are an important consideration in retirement planning. It’s essential to determine your tax bracket and how your income will be taxed. By considering tax-friendly investment options and developing a withdrawal strategy, you can help mitigate your tax liability in retirement. This is the main reason we don’t want to delay or skip the process of proper tax-analysis and ensure it’s one of the foundations of your retirement plan.

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.