The big question:
Do I have enough saved for retirement?
A recent study showed that 68% of workers feel confident they will have enough money to live comfortably in retirement, meaning plenty of people (32%) feel uncertain about retirement.
Another study* found that 16% of Americans now plan to retire later than originally planned.
The bigger question:
How much of my money can I keep?
The way you withdraw from your accounts during retirement can significantly impact:
•How long your money lasts
•How much you pay in taxes
•How high your taxable income is each year
Without a strategy, taxes can significantly reduce your income. In retirement, how and when you take money from different accounts can greatly impact your taxes and how long your savings last. By understanding how different accounts are taxed, you can create a withdrawal strategy that minimizes your tax burden and maximizes your savings. By understanding how different income sources are taxed, you can create a withdrawal strategy that minimizes your tax burden and helps your savings last longer.
Managing Taxes is Key
Taxes can be one of the bigger expenses you’ll face in retirement. With a tax-efficient approach, you can potentially:
•Avoid higher tax brackets
•Reduce unnecessary taxes
•Keep more of your savings
Every dollar paid in taxes is a dollar less for your retirement needs. The more efficiently you manage your taxes, the longer your savings could last.
Know Your Tax Situation
Retirement often brings changes to your tax bracket.
If your income decreases, you may move into a lower tax bracket, allowing you to take advantage of more favorable tax rates.
Required minimum distributions (RMDs) or large withdrawals from tax-deferred accounts could increase your income and push you into a higher bracket.
The Power of Tax Diversification
Having a diversified tax strategy in retirement is crucial for managing taxes effectively.
By spreading withdrawals across tax-deferred, tax-free, and taxable accounts, you can help control your tax liability and optimize income:
•Tax-deferred: Traditional 401(k), Traditional IRA
•Tax-free: Roth 401(k), Roth IRA
•Taxable: Brokerage accounts
If you’re unsure that your tax strategy is doing the most to help you keep more of your money, or if you simply want to increase your understanding of how tax strategy can benefit you, reach out to our office! Our advisors can connect you with professionals to help you gain a deeper sense of confidence when it comes to your finances.
*https://www.nerdwallet.com/article/investing/how-much-to-save-for-retirement