Broker Check

Have you planned for your retirement taxes?

July 16, 2022

Many people believe that when they retire they may pay less in taxes than they do now and don't plan for that.

For some that may be true, for others not so much.

Let's assume that you plan for having $1 million in retirement savings at the time you retire.   Of that amount, you might be paying anywhere from 0% to 40% of that in taxes during your retirement years.  That's $0 to $400,000 (or more) of that $1 million could go out the door to a combination of federal and state taxes depending on what kind of accounts that money sits in and how fast you draw down on it.

A common misconception is  that your tax preparer is looking at minimizing your taxes and that may or may not be true.

As a CPA I can say that often they are looking at minimizing taxes now and maybe not years from now.

As a financial advisor I can tell you that as recently as this past tax season I saw tax returns of tax clients who had other financial advisors and those did not make good choices to minimize long term tax effects.  When those advisors were asked why they made the choices they did, their best response was that the company they work for does not allow them to give tax advice.

I personally think this is a short sighted approach and not good for the client.  While there are many variables that should factor into who you let work on your retirement and financial planning, if your financial advisor does not ask to look at your tax return every year and your tax return preparer cannot give you advice on how to minimize taxes into future years you might want to consider getting second opinions on those providers.

In the meantime, here is a Kiplinger article on different types of taxes to be aware of in your retirement years.