Taxes and Retirement – What is Important to Consider

By | July 22nd, 2021|Retirement|

You’ve figured out your budget, your retirement nest egg is substantial, and you’re ready to make the transition to living on income from savings instead of income from work. But have you thought through the tax implications? It’s very common for tax planning to be overlooked, under the assumption that you’ll be in a lower tax bracket and Social Security payments aren’t fully taxed. In fact, a recent study found that 57% of Americans rarely consider the taxes they will pay/are paying in retirement.1 This can be an expensive mistake, and it has implications for other retirement benefits.

A New Tax Landscape

Depending on your income from other sources, up to 85% of your Social Security benefits may incur Federal income taxes. Additionally, withdrawals from a 401(k) and traditional IRAs are taxable, since the money you funded them with was tax-deferred. Pension payments are also considered taxable income. If you have taxable investment accounts you should be aware that dividends, interest income and capital gains from stock sales will all create tax liabilities.

Your new retirement tax bracket is derived from your combined income, which is your adjustable gross income, nontaxable interest income and some portion of your Social Security. If your income is high enough, you may have to pay a premium over regular rates for Medicare Part B.

Lifestyle Tactics to Lower Your Tax Bill

The first step to reducing your potential tax bill is to lower your income needs. To do this, many people try to pay off or pay down as much as possible on mortgage and other debts before retirement. This means you won’t have to withdraw as much income, which will lower your tax liability. This may require some re-jiggering of budgets or putting off discretionary expenses during the last years of working, but the advantage over the course of your retirement may be worth it.

If you’re planning to move in retirement, or even if you hadn’t thought of it but are open to the idea – consider moving somewhere with lower taxes. This can include lower state income taxes or even states that don’t tax retirement income.

If you’re set for income needs and had planned to make a charitable contribution, consider doing it directly from a traditional IRA. Once you reach the age of 72, Required Minimum Distributions (RMDs) will kick in. The lower your balance, the lower the amount of the RMD.

Investment Strategies for Managing Income

 Asset allocation is a strategy for diversifying your accounts across investment types. Asset location refers to a strategy for placing investments in accounts where they have the potential to lower your tax liability.

Taxable accounts, such as brokerage accounts, should hold tax-efficient investments. These include stocks you will hold for more than a year; tax-exempt municipal bonds; and index funds. Tax-deferred accounts are good homes for tax-inefficient investments. These include fixed income, commodities, some alternatives, and other actively managed strategies.

If you have a Roth IRA from which you can withdraw tax-free, along with a traditional IRA, you may want to be thoughtful about your total income picture when determining which account to withdraw from. Taking from the appropriate account based on whether your income is likely to be higher or lower in a given year can lower taxes.
Converting to a Roth IRA may also be a good strategy – but you’ll need to think through when and how much you’ll convert, or your upfront tax bill will be quite large. Staggering the conversion over several years can make it more manageable.

The Bottom Line

Retirement planning doesn’t stop with creating an investment strategy to generate the income you want. Carefully thinking through the tax implications and making tactical moves to keep income as tax-advantageous as possible can have a lasting impact.


1. The 2021 Nationwide Retirement Institute Tax-Efficient Retirement Income Survey. The Harris Poll. March 25, 2021.


The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.
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Video series: Retirement Readiness #3 – How should I Invest?

By | November 26th, 2019|DFA, Dimensional Fund Advisors, Markets, Retirement|

How much retirement income can YOUR portfolio support? Have you considered interest rate and inflation risk? Focusing on a final number doesn’t tell the whole story. It’s important to have discussions with a financial planner about income streams and cost of living in your retirement years.

Video series: Retirement Readiness #2 – How Much Should I Save for Retirement?

By | November 19th, 2019|DFA, Dimensional Fund Advisors, Retirement|

Check out this second installment of the Retirement Readiness series! How much should you save for retirement? Marlena Lee, PhD, discusses important factors that can help you meet your goals, like determining your savings rate, monitoring your progress, and making adjustments over time. This My Retirement Income Calculator can help give you a sense of how much income your savings could provide in retirement.

Video series: Retirement Readiness #1 – Monitoring Your Progress

By | November 14th, 2019|Dimensional Fund Advisors, Markets, Retirement|

When planning for retirement, it’s important to keep in mind how much spending your savings can support. The decisions you make today can help improve your retirement readiness.

Beyond determining how much money to save, it’s useful to think about retirement in terms of how much income you’ll need after you stop working. Dimensional’s My Retirement Income Calculator can help give you a sense of how much income your savings could provide in retirement.

Enjoy our Retirement Readiness series to help you set and achieve your retirement goals.

Announcing our Retirement Services Division

By | November 5th, 2019|Retirement|

Grimme release

Kids’ future or yours? 6 Tips to Balance College and Retirement

By | October 8th, 2019|College Planning, Retirement|

Get the facts about saving for retirement and college at the same time. Understanding that funding each is equally important, and that even a late start is a good start. Every dollar saved is a dollar you don’t have to borrow.


The Secret of the Solo 401(k)

By | August 29th, 2019|Retirement|

Self-employment has may perks, but there’s at least one significant drawback: the lack of an employer-sponsored retirement plan like a 401(k).

We have a solution for you!

The solo 401(k) is designed for self-employed workers with no employees, and mimics many of the features of an employer-sponsored plan.


  1. Save up to $19,000 (over 50? Make that $25,000)
  2. Profit sharing options of up to 25% of income on top of the 19k
  3. Flexibility – rollover, roth, loan options
  4. High earners can take advantage of a supersized pension option of up to 100k


Check out our Solo 401(k) ebook here and contact us today!

Rising annual health care costs in retirement

By | August 21st, 2019|Retirement|

Health care is traditionally one of the largest expenses in retirement. Planning for these costs, and keeping up with it as you age is crucial.

Given variation in health care cost inflation from year to year, it may be prudent to assume an annual health care inflation rate of 6.5% which may require growth as well as current income from your retirement portfolio.

This chart illustrates the current out-of-pocket health care costs experienced by today’s 65-year-old, and how those costs may increase over time. These costs include traditional Medicare with a Medigap Plan G, which is fairly comprehensive. Supplemental policies, called Medigap, fill in gaps in Medicare coverage such as co-pays and deductibles but not for most prescriptions. Part D for prescription drugs and out-of-pocket expenses are also included. Median costs are about $5,160 per person. These costs are projected to more than triple over 20 years for three reasons:  1) higher than average inflation for health care expenses; 2) increased use of health care such as drugs at older ages; and 3) Medigap premiums that increase not only with inflation but also due to increased age. It is important to note that these costs do not include most long-term care expenses.

Retirement Insights Tip #6 – Changes in Spending

By | July 29th, 2019|Markets, Retirement|

Spending habits change over time. Typically, spending peaks at the age of 45 and starts a slow decline. This is an important piece of the retirement planning puzzle. We often talk about distribution strategies at retirement age. A solid estimate of spending is necessary to strategize for your future.

This chart illustrates what college-educated households spend on major expenditures at specific ages. Most Americans’ peak spending years are between ages 45 and 54, and thereafter spending tends to lower at older ages. Note that the largest expenditure category at all ages is housing, while the category that older people spend significantly more on than younger people is health care.

Retirement Insights Tip #5: The Power of Tax Deferred Compounding

By | July 22nd, 2019|IRS, Retirement|

Deferring the tax on investment earnings, such as dividends, interest or capital gains, may help accumulate more after-tax wealth over time than earning the same return in a taxable account. This is known as tax-deferred compounding. This chart shows an initial $100,000 after-tax investment in either a taxable or tax-deferred account that earns a 6% return (assumed to be subject to ordinary income taxes). Assuming an income tax rate of 24%, the value of the tax-deferred account (net of taxes owed) after 30 years accumulates over $79,000 more than if the investment return had been taxed 24% each year.

Choosing to shelter investment growth in tax-deferred accounts over the long term may result in more wealth for retirement. The value of tax deferral in this example is equivalent to a .7% higher annual return over the time period. TAXES CAN WAIT!

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