Retirement, Taxes, and Mortality – Three Unavoidable Certainties of Life

If you’re nearing retirement, you may be thinking about that vacation you’ve always planned for or not having to get up early on Monday mornings to head off for work.  You’ve worked hard most of your life, which should be celebrated. However, one of the frequently overlooked components of your retirement years is taxes.  

As you migrate from earning an income to living off Social Security, retirement savings, and other income sources, you should ask yourself: does my retirement plan account for the taxes I may have to pay?  

We get it….retirement planning for 20, 30, or more years can be a daunting experience.   It starts with accumulating substantial assets in 401ks, IRAs, Social Security, and personal savings accounts. The more money you accumulate during your working years, the easier it will be to plan for retirement.

SGL Insights: One of your planning challenges will be taxes. Every dollar of tax is one less dollar you will have to fund your retirement.  

Getting ready to retire in Buffalo Grove?  Read our latest Quick Guide for tips and advice. 

This article reviews ten tax planning ideas to help you prepare for retirement. 

1. Pre-tax retirement accounts, like Traditional IRAs or 401(k)s, allow you to contribute income before it’s taxed, reducing your taxable income during your working years. Taxes are paid when you withdraw assets from these accounts to fund your cost of living.  
2. Roth IRAs are funded with after-tax dollars. Appreciation and income accrue tax-free, and distributions are tax-free. 
3. Certain retirement accounts, like 401(k)s and traditional IRAs, require you to start taking minimum distributions (RMDs) when you reach a certain age (currently 73 as per the SECURE Act of 2023). These RMDs generate taxable distributions and could push you into a higher tax bracket. Planning for RMDs is crucial to minimize any tax liabilities you may incur, especially if you are in a higher tax bracket.
4. When you begin to draw income from your retirement savings, it’s important to have a strategy for which accounts to draw from and when. The order of your distributions can have significant tax implications.
5. Some states have different tax rules regarding retirement income. If you plan to move to another state, research how that state taxes withdrawals from 401ks, traditional IRAs, and Roth IRAs.
6. Some of your Social Security benefits may be taxable depending on your income. Strategies to minimize the impact of these taxes should be a part of your retirement plan, especially if you plan on working part-time or on an independent contractor basis when you and your spouse are retired. 
7. Creating strategies to pass on your estate assets to your heirs in the most tax-efficient way possible should also be incorporated into your retirement planning process. Consider the current and potential future estate tax laws, the step-up in basis rules, and strategies like gifting and trusts.
8. If you’re eligible, a Health Saving Account (HSA) can be a triple tax-advantaged account that you can use for medical expenses in retirement. Because contributions are tax-deductible, your money grows tax-free, and withdrawals for qualified medical expenses are also tax-free.
9. Another component that should be accounted for in your retirement plan is tax law changes, especially if you have accumulated substantial assets or are in a high tax bracket. 
10. Giving back to the community and those causes you believe in should be factored into your retirement plan. There may be tax-advantaged ways to do this, particularly with the help of donor-advised funds or qualified charitable distributions from an IRA.

Taxes may be considered a hidden retirement expense – they are unavoidable and impact the amount of money you have left over to cover your living expenses. Another hidden expense that is unavoidable is inflation. It impacts the purchasing power of your assets, and if you are living on a fixed income with no savings component (wiggle room), it can be devastating. Your retirement planning budget should always have an inflation component.

The SGL Difference

As a fiduciary financial advisory firm in Buffalo Grove, IL, the SGL Financial team prides itself on being different from other advisory firms because of our deep experience and specialization in tax planning, tax-efficient investment strategies, and tax preparation services. This allows us to understand all aspects of your financial situation, which is crucial when planning for decades of retirement years. 

We have eight standards that serve as the foundation of our firm: 

• Our attention is fully centered on you
• We always act in your best interests as trusted fiduciaries
• We use a comprehensive approach to addressing your financial needs
• We serve as your financial advocate
• We are fully transparent about your expenses
• We deeply value our clients and the trust they place in us
• We step into the role of your personal Chief Financial Officer
• We offer seasoned expertise and tangible value

Our team includes Buffalo Grove CERTIFIED FINANCIAL PLANNER™ (CFP®) with a specialized retirement planning and tax focus. We won’t develop your retirement plan in a vacuum. We’ll work with you to devise the most tax-efficient retirement plan possible.  

Your golden years are meant to be enjoyed, not spent worrying about financial challenges, and effective tax planning can make this dream a reality. 

To learn more about SGL Financial’s tax planning process, we invite you to connect with us for an introductory conversation.