When envisioning the next chapter of your life, the impact of taxes can often be overlooked or forgotten altogether. The reality is, without the proper planning, you may be at the mercy of an impending “tax torpedo” come retirement.

This week, Joel Johnson, CFP® joins Retire Wiser with NBC Connecticut to share the top tax considerations when creating a solid financial plan for today’s retirees.

Planning for Taxes in Retirement

While you’re still working, your financial focus is on saving enough money to retire and do the things you want to do. You likely haven’t given as much thought to the potential tax burden that awaits you. The longer you delay tax planning, the fewer options you will have to reduce your future tax obligation. By taking tax considerations into account now, you can help minimize the impact on your retirement income down the road.

Minimizing Taxes on Social Security

It’s important to remember that once your total combined income exceeds a certain threshold, you will have to pay income taxes on a larger percentage of your Social Security benefits. For many high-income retirees, especially those here in the Northeast, up to 85% of benefits can be taxable. However, with the right strategy – such as converting funds from a traditional IRA or 401(k) to a Roth IRA – a financial advisor can help you lower the tax burden on your Social Security benefits.

Avoiding a Higher Tax Bracket

Tax-wise decisions regarding when and how much to withdraw from your retirement accounts can help you avoid being pushed into a higher tax bracket. Taking too much from your accounts too quickly may increase your taxable income and result in higher taxes. A financial advisor can help you understand and navigate current tax brackets as well as develop a 401(k) or IRA withdrawal strategy that minimizes your tax liability while supporting your overall retirement goals.

Creating an Income Strategy

It’s essential to have a comprehensive retirement income plan in place 5-10 years before you retire. By evaluating your current savings and determining the rate of return you’ll need, you can begin implementing tax-efficient strategies to ensure you’re on track to meet your retirement income goals.

A tax professional can help you manage your tax situation so you can keep more of what you’ve earned in retirement. With their guidance, you may benefit from spreading your tax liability over several years or diversifying your savings across tax-deferred, taxable, and tax-free accounts.