How can I cut my taxes now that I have retired?
Answers | 1
What are your sources of retirement income and how does the total stack up against the income you were receiving while working? Most people have a lower income level in retirement so right away, your taxes go down. You are also no longer paying into Social Security and Medicare so that is a decrease of 7.65% in taxes due. Your total tax burden will depend on how much income you receive that you can't change such as a pension, Social Security benefits, etc and income you receive only if you want to receive it such as withdrawals from retirement accounts, selling taxable investments or some kind of employment. If you receive a pension all of the payment is taxable income but even a very generous pension will usually be no more than 60% of your working income. Social Security benefits may be tax-free, depending on your other income. Up to 85% - but not more than 85% - of Social Security benefits are taxable. You can avoid taking withdrawals from your retirement accounts until you turn 70 1/2 but at that age you are required to take annual withdrawals which may be fully taxable. If you want to get an idea of what your income taxes will look like in retirement, you should consult with a local Certified Financial Planner or Certified Public Accountant in your area. Good luck!