Taxes in Retirement
There is one thing in life that you will always be able to count on: taxes! Despite the countless promises politicians make each year, taxes are on the rise, and they will continue to rise every year. The question is not whether they will rise, but by how much? And the question that faces retirees – how will this affect your retirement? When planning your retirement, not planning for taxes and tax increases can be disastrous. Do you know how much of your retirement will be taxed away? Are your social security benefits taxable? How will you prevent all of your retirement money from disappearing into a giant tax hole?
Does Retirement Change your Tax Bracket?
Most people assume that American workers usually land in a lower tax bracket once in retirement. But many retirees find just the opposite and are surprised that a long-recommended asset-tapping strategy may actually nudge them into a higher tax rate.
If you’re depending on traditional IRA or 401(k) funds, you will owe taxes. The earnings of these accounts are tax-deferred, meaning you owe tax at your ordinary income tax rate on money you take out in retirement.
Taxing on Government Benefits?
Planning on extra income in retirement? Any added retirement income, whether from an IRA or pension plan, investment income or a job (including self-employment), can lead to taxes on at least part of your government benefits. Retirees can pay taxes on up to 85 percent of Social Security benefits!
Don’t Let Taxes Drain your Retirement, Let us Help
Taxes are tricky, confusing, and vast. Just when you think you’ve accounted for them all, more pop up. As time goes on, and taxes continue to rise, planning properly around those taxes becomes a vital part of your retirement plan. In fact, you may find that you aren’t able to retire when you’d originally planned, simply because you aren’t prepared for the taxes in retirement, and won’t have enough income to supplement them.
At Compass Retirement, tax is just one of our specialties. We know taxes from the inside out, and it’s our job to stay on top of all the newest and most relevant tax information. We know when taxes rise, we know which taxes rise, and we know how to plan for them. If you’re concerned about what rising taxes mean for your retirement, or simply want to know how your money will be taxed during your retirement, we would love to help. We are leaders in the retirement planning field, and taxes don’t scare us.