Do you look forward to retiring? You may have your retirement plan and spending budget all set, or you may still be putting it all together. Have you allowed enough in your retirement planning and spending budget to take care of taxes?

Taxes and Your Retirement Dreams

Someday, you dream of being able to work if you want to do so. For many Americans, this is a reality; you have saved, budgeted and planned for your retirement years. However, sometimes “life” happens, and you are not prepared.

Someday, you will experience your last annual employee evaluation, a retirement celebration and it will be the end of having a boss. It’s something most of us look forward to experiencing.If you’re no longer working full-time, you most likely think your tax bill will somehow decrease too. Taxes are one of those typically dreaded things that cannot be avoided. Many of us are making the mistake of assuming we won’t pay taxes after retirement or that we will pay significantly less in taxes.

Retiring does not always equal a tax decline

Unfortunately, our taxes and tax rates do not always decline as we retire.  Some people who are retiring have plenty of money and are wealthy. Our government needs money and taxes is the way they get it, so this means, retiring does not always equal a tax decline.

As you make your retirement plans, assume your tax rates will stay the same. Realizing that you will most likely have to pay taxes will help you be best prepared for managing taxes after retirement.

While your income is different, you are still receiving money each month which is typically taxable. Whether you are taxed or not on your social security benefit depends on your filing status and other income received. According to the Social Security Administration: “You must pay taxes on your benefits if you file a federal tax return as an ‘individual’ and your ‘combined income’ exceeds $25,000

Most people never consider having to pay taxes on any part of your social security benefits. Whether you pay taxes or not depends on the total retirement income for you and your spouse and whether you are filing individual or joint tax returns. You may also have to pay taxes on any withdrawals from tax-deferred investments as well as on any pension you receive, such as traditional IRAs, 401(k)s, 403(b)s, and similar retirement plans, and tax-deferred annuities. Also, withdrawals from the Thrift Savings Plan (TSP), the federal government’s version of a 401(k) for employees, is also taxable.

Things To Consider

• As we age, there are a few tax benefits we need to find and utilize to our advantage if they apply to your unique situation.
• Some states do not tax pension income, and many retirees consider these states if they relocate as they retire.
• When you do your retirement planning, be sure to add in taxes as they make a difference in your spending budget.