Episode 49: How Much Will I Pay in Taxes in Retirement?

Published: August 22, 2021 | Updated on: August 23, 2021

Thank you for joining us for episode 49 of our Money Wisdom Question Series. Today’s question is, “How much will I pay in taxes in retirement?”

The Importance of Tax Planning as You Plan to Retire

You can’t talk about retirement planning without talking about tax planning. As advisors, we spend a lot of time with retirement planning, talking about what products you should invest in and how much money you need to save. However, just as important is thinking about how much of that money you are going to be able to keep.

ROTH Retirement Accounts

You’ve probably heard of a ROTH, where your retirement money can grow tax-free. When you think about a 401(k) that you saved money into all these years, the benefit is usually “I’m going to put money into that plan while I’m still working to bring my taxable income lower.” That money is then going to grow tax-deferred my 401(k)’s, so that when I retire, I’ve got this money to live on. And since I’m no longer working, I’ll be in a lower tax bracket and be able to keep more of that money. For some of you, this is how it’s going to work but for others, it’s not.

How Much of Your Money Will You Be Able to Keep?

Without proper tax planning, a lot of retirees will pay more in taxes in retirement than they did during their working years. Retirement funds are about more than just what you’ve saved up throughout your lifetime, and whether that will be enough. It’s just as important to consider how much of that money you will be able keep. The average retirement age in the United States right now is in the early 60’s. Maybe you don’t draw your Social Security at that point because that’s growing while you wait to take it. That’s not a recommendation, but maybe that’s your situation. Or maybe you have a pension or and you decide not to draw from that yet, either. Most people will find themselves in the early years of retirement in a very low tax bracket. And who doesn’t want to pay less money in taxes? But there are a lot of mistakes people make in those early years of retirement that they might regret later on.

Start Having Conversations About Tax Planning

Do you do a ROTH conversion? It’s not the most popular option because, “Why would I pay taxes on money now if I don’t have to?” Well, you might consider it if doing so would give you better, tax-free growth. A ROTH conversion may also help decrease your tax liability in the future. If you talk to people that are over the age of 72 and they’re pulling out their Required Minimum Distribution (RMD), believe it or not, a lot of people don’t need that money. Therefor, they’re forced to pay taxes on money that they don’t need, and lack of control is what gives a lot of people a lot of discomfort in retirement.


Make sure you’re having conversations not just about how do you get your taxes low today, about how to remain steady. You don’t want to go from a very low tax bracket to very high. You’ve got to make sure that you’re looking further out than just right now, because taxes are a huge deal in retirement, particularly during income planning.

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, download your copy of our offer, “Are You Paying Too Much In Taxes In Retirement?”.

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