Tag Archives: retirement

8 Ways to Reduce the Tax Bite During Retirement

It’s one thing to build up your retirement savings so you can retire. But remember, every dollar you save in tax-deferred plans, including 401(k)s and traditional IRAs, will be taxed when you withdraw money after retirement. It’s also important to plan so that you can minimize that tax bite after retirement.

If you haven’t thought about tax planning yet, it’s not too late. Here are eight strategies to consider as you approach and enter retirement:

(1) Know what you spend.  Many people believe their expenses will go down in retirement, but the reality depends on the lifestyle you want. Do you plan to travel? Take classes or start a new hobby? Help out your children and grandchildren? These activities will cost money. And don’t forget about healthcare costs. Understand what Medicare and supplemental health policies will provide and what you’ll be paying out of pocket. Once you have a firm grasp on your expenses, you can strategically plan your withdrawals.

(2) Know your tax bracket.  Staying in a low tax bracket can help retirees minimize the tax they pay on their withdrawals. When your income reaches specified thresholds, you pay gradually higher amounts of tax on the additional income. Check out the tax rate schedules, tax tables and cost-of-living adjustments for certain tax items for 2017. If your withdrawal plan puts you into a higher tax bracket by a hair, you might want to lower the amount you plan to pull out.

(3) Diversify.  Having a variety of accounts that are taxed differently can provide flexibility when it comes to taking withdrawals in retirement. Your retirement savings may include a pension, IRAs, a 401(k) account and stocks, and bonds and mutual funds not held in tax-deferred accounts. Consider drawing from different buckets. Taking funds from already taxed accounts, like Roth IRAs or Roth 401(k)s, may be better than withdrawing from all accounts equally. Leaving your tax-deferred accounts, like traditional IRAs, to grow reduces taxable income. One caveat: If you are 70 ½ or older, you must take minimum distributions.

If you don’t have a Roth IRA or Roth 401(k) you might want to consult an accountant, a CFP® professional, or your human resources department about opening one, or even transferring some of your retirement savings into one. If you have had a Roth IRA for more than five years and are older than 59 ½, you can withdraw money tax-free.

(4) Think about using a Roth IRA, but be careful.  If you don’t have a Roth, and you’re a high earner and therefore precluded from opening a new Roth, you can still establish one by putting $5,500 in a traditional nondeductible IRA and then converting it to a Roth later on. But there’s an important trap to avoid. If you have other IRA accounts that were funded with deductible contributions, the amount converted to the Roth is considered to have come pro-ratably from all your IRAs, and not just from the nondeductible IRA you set up to convert to the Roth.  As a result, some of your conversion may be taxable.

(5) Plan to delay withdrawals. If financial markets are rising, enjoy the ride and wait to withdraw. You’ll pay taxes on the gains later. If you don’t need to pull money from IRAs, 401(k) and other tax-deferred accounts, hold off as long as you can or until you must take distributions at 70 ½. Let those accounts continue to build up on a tax-deferred basis until you need them.

(6) Know the rules for Social Security. The stark reality is it does not generally pay to claim Social Security retirement benefits before full retirement age. That’s age 66 for people born between 1943 and the end of 1954. The retirement age increases in two-month increments until age 67, for those born in 1960 or later.

Here’s why this is important. If you were born in July 1955 (age; 62) and will earn $100,000 for 2017, the Social Security quick benefit calculator displays how your benefit jumps from $1,421 to as much as $2700 per month if you delay social security income.


Retirement age Monthly benefit amount1
62 and 6 months in 2017 $1,739.00
63 in 2018 $1,805.00
70 in 2025 $3,126.00
1Assumes no future increases in prices or earnings.


If you are married, widowed, or divorced having been married for more than 10 years, your claiming strategy gets a bit more complicated, but making the right choice can be even more profitable. Talk to a CFP® professional or another financial professional about strategies you should consider. Your Social Security income is also taxable, depending how much income you receive from other sources, including withdrawals from retirement accounts.

(7) Decide where to live.  For many, the ideal place to retire is someplace with a warmer climate, more affordable housing, and close to family or friends.  But another important factor to consider is how your income and assets will be taxed. Some states have no income taxes for individuals; others don’t tax Social Security benefits and most income from pensions and retirement accounts.  Check out the 10 Most Tax-Friendly States for Retirees.

(8) It all starts with a plan.  It’s important to have a plan in place before you retire. But even if you’re close to retirement, it’s not too late to take advantage of the benefits of tax planning. A financial planning professional can help you identify your goals and develop a personalized plan that will maximize your income and reduce your taxes in retirement. A financial planning professional will also work hand in hand with your accountant to ensure your plan is executed properly.

But remember, unexpected circumstances can arise and tax laws are constantly changing. Meet with your advisors on a regular basis to make sure you remain on track. Balance your need for income against what you truly in enjoy in life, so that you can avoid paying unnecessary taxes.

By J.J. Burns, CFP® From 8 Ways to Reduce the Tax Bite During Retirement Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.

Retirement for Baby Boomers when there isn’t one

Every generation believes itself unique. Unfortunately for Baby Boomers, this may be especially true about their ability to retire.

Some sociologists argue that the Baby Boomer generation has taken historical uniqueness to the extreme, rewriting the rules on just about everything: sex, marriage, work ethic, consumption, faith, and even death. Now that Baby Boomers are in or entering their 60s, it’s ironic then that many lament they cannot retire as their parents did.

In a recent survey by AARP, 44 percent of Boomers said they believed their standard of living will be worse than that of the previous generation.

Despite this result, the first Baby Boomers are often declining to delay their retirement past the age that Social Security defines as their full retirement age, according to a 2013 MetLife study. Even though these Boomers enjoy approximately five more years of life expectancy than their parents did at age 65, 52 percent of these Boomers have retired at an average age of 59.5.

On the plus side for Boomers is the fact that one of the biggest threats to retiree security — inflation — is mercifully low. Older Americans will recall a time when annual inflation averaged between 6 percent and 10 percent a year, and how cumulative inflation from 1970 to 1989 ran a whopping 162 percent.

So what’s left to retirement for Baby Boomers to figure out?  What rules should they break, and which should they keep?

  • The “4 percent” withdrawal rule:  Developed two decades ago, this rule sets the inflation-adjusted amount that retirees can take annually from their savings in order to avoid running out of money before their deaths. The rule was based on historic asset return data, and focused on the negative returns of the Great Depression and the stagflation of the 1970s as presenting the greatest threats to individuals living on investment income. Four percent was determined to be the maximum rate that would allow a retiree to live through periods like these without exhausting his resources. But while 4 percent was created to work for Boomers’ parents or grandparents, it‘s unclear as to whether it will work going forward. Near-zero real returns to bonds as well as increased global volatility have many financial planners believing the “safe” withdrawal rate will need to be lower for Boomers. At the very least, Boomers will need to be flexible in their retirements, able to dial down their rate of withdrawal in extremely negative return environments, delaying consumption until more positive returns are achieved. BREAK IT
  • No debt in retirement:  Boomers are already carrying much more debt – think mortgages and credit cards – into their golden years than did their forbears. But today’s retirees would do better to honor their elders’ example.  Being debt-free in retirement provides necessary cash-flow flexibility. KEEP IT
  • A care-free retirement depends on smart investing:  While not exactly a “rule,” the many brokerage ads depicting happy couples strolling the beach have a lot of retirement-bound Boomers believing that if they just pick the right investments, they will do fine. The reality is a bit more complex:  Prudent investing is wise, but not a complete solution until combined with expense control, down-sizing, health care and disability management, and even part-time work. A diversified “portfolio” of solutions, not a single hot stock or fund, will be the winning formula for many retirees. BREAK IT
  • A carefree retirement, period: Isn’t this the deal that all generations, not just the aging hippies, subscribe to? Unfortunately, Boomers’ increasing life expectancies – theirs and their parents – have meant that their retirements may include much elderly caretaking. Meanwhile, their children – hard-hit by the economy – are also asking mom and dad for help.  Boomers will need to establish realistic priorities, and to set financial limits for their retirements that they might not have anticipated. They’ll need a multi-generational approach to financial planning that addresses both their needs as well as the needs of their extended families.

Defiant Boomers have always done things their way, and navigating retirement will be no exception.  They are, in fact, the first generation that has to look primarily to their own resources and management – rather than to government or corporations – to invest for retirement and create an income stream from these investments.

Fortunately, financial planning and the certification of competent, ethical professionals have come of age with the Boomers, to help them make the most of this uncharted territory.  Boomers will no doubt continue to “do their own thing” in retirement, but with a CFP, they can do it prudently and successfully.


From Retirement for Baby Boomers when there isn’t one Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.

Crunch Time- Strategies for Aggressive Saving

If people want to be able to save more, there are basically three choices:  spend less money, earn more money, or some combination of the two. There’s also another option – granted, a more aggressive option – of aggressive spending cuts to achieve aggressive savings goals.

But why? Simple. Americans need to save more if they want to achieve not just wealth, but enough money to live off of and not work forever.

According to the March 2016 Retirement Confidence Survey, 54% report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit (DB) plans, is less than $25,000.  This includes 26% who say they have less than $1,000 in savings. That’s not good news.

So, how to kick start saving aggressively – cut spending. Here are some tips:

  1. Conduct a spending audit with your personal/miscellaneous expenses.  I think most people have a good idea of how much they spend on food, shelter, transportation, and clothing but have no idea just how much they are spending on everything else.  A great place to find low hanging fruit is by conducting a spending audit on the places you like to go and the things you like to do.  From expensive hobbies, traveling, entertainment and gifts, these types of places where we spend money can add up very quickly.  Am I saying that you shouldn’t spend money on fun?  No, but I am saying that you need to identify just how much you are spending and then decide on where you can cut back.  For example, if you like to golf every weekend, consider going out every other weekend.  If you take two big trips a year, consider cutting it down to one.
  2. Cut your housing expenses by 15%.  It is the largest expense for most people.  It is also one of the broadest spending categories.  Mortgage payments or rent, homeowner’s or renter’s insurance, utilities, phone, internet and cable TV are some of the expenses you likely have.  You may be able to save hundreds of dollars each month by shopping for a cheaper mortgage rate.  If renting, consider moving to a smaller, less expensive place.  Think about cancelling your cable TV, getting rid of your land line if you have a cell phone, and trading your cell phone plan for a prepaid plan if you only make occasional calls.  By just reducing 15 percent of household expenses, the average household could save approximately $3,700 a year.
  3. It’s OK to say NO to your children and grandchildren.  I have always joked with the younger wealth builders I have worked with in the past that have children, that as soon as their kids are out of the house, they will have this magic money tree in their backyard that will seem to have grown out of nowhere.  It is a joke of course, but truthfully, if you are supporting children, grandchildren, or in some cases both, it may be time to cut the umbilical cord.  I understand that I may have offended some by that statement, but if you are serious about wanting to save aggressively, you must be able to spend less.  Spending money, cell phones, car insurance, gas money and car payments are a few things you may be supplementing for a child or grandchild that you might consider cutting out or at least reducing.  Wanting our children and grandchildren to have everything we didn’t have growing up may make us feel better, but it could be hazardous to our wealth.

I have always said that spend, spend, spend may lead to the poorhouse and save, save, save may lead to resentment.  But if it is crunch-time and you are serious about saving aggressively, in order to save, save, save, you have no choice but to spend less, less, less!


From Crunch Time…Strategies for Aggressive Saving Copyright ©2017, Certified Financial Planner Board of Standards, Inc. All rights reserved. Used with permission.