Retirement Planning

Lower Taxes in Retirement?

We often assume taxes will be lower when we retire, but that may not be the case. This article offers suggestions on things to consider and discuss with your financial advisor to help you prepare.

How Much Tax Will I Pay in Retirement?

Americans have been enjoying some of the lowest income tax rates in over two decades.1 However, the Congressional Budget Office has predicted that income taxes are on target to climb well above this long-term standing record within the next 10 years.2

What does all this mean?

That it's time to get smarter about how income taxes may affect your future retirement income. In this article, we're debunking some common misconceptions regarding taxes in retirement so that together with your financial professional, you can begin to implement an effective tax planning retirement strategy that'll help you keep more of what you've worked so hard to save for all these years.

I'll be in a lower tax bracket when I retire because I'll have a lot less taxable income.

Fact: Being in retirement doesn't necessarily mean you'll find yourself in a lower tax bracket. Banking a good portion of your money in tax-deferred retirement savings accounts over the years, in addition to receiving Social Security benefits, pensions, and other assets, could produce new tax concerns. This means that taxes you deferred over the years, coupled with additional retirement assets, may find you retiring back to your current tax bracket, or possibly higher without proper retirement income planning.

I'll have less taxes when I retire because I won't be taking home a paycheck.

Fact: When you're working, you may have many qualifying deductions that can contribute towards helping you reduce your taxable income. However, when you retire, deductions such as child care credits, educational credits, mortgage deductions, dependents living at home, etc., may no longer be applicable to your situation. Not having these deductions may leave you with more taxable income than you expected in retirement.

Creating a tax-smart retirement plan income strategy

Nobody enjoys having to pay income taxes. Unfortunately, taxes don't stop when your paycheck ends. And when you begin tapping into your pension, retirement accounts, and even your Social Security - you may be taxed by the government as well as at the state level.

The good news is that you can play a significant role in controlling the impact taxes will have on your retirement income by working with a financial professional who can help you create a tax-smart strategy. You might be surprised at how a few simple financial adjustments may be able to help you lessen your tax liabilities when it comes time to tap into your nest egg.

Disclaimer: This article is meant to provide an overview of common tax misconceptions in retirement, and not in any way to provide tax related or financial advice.

1. http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets
2. http://www.taxpolicycenter.org/taxvox/cbo-sees-big-increase-individual-income-tax-revenues-over-next-decade

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Planning for Retirement

Taxes don't stop when your paycheck does. In fact, most of us have misconceptions about having to pay fewer income taxes when we retire. The fact is, when you begin to tap into your pension, retirement accounts, and even your Social Security, you may be taxed. With tax rates on the rise, you need to become smarter planning for retirement. For more information, visit the Protective learning center.


All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. For information about Protective Life and its products and services, visit www.protective.com.

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