The Retirement Dream

The Retirement Dream

January 4, 2021 All Articles Retirement Taxes 0

Imagine that you’ve worked 45 years and saved all you can. Your dream now is to retire near your children so you can watch your grandkids grow up. One year out from this becoming a reality you visit a retirement planning specialist. You cannot wait to hear the words “you can do this.” Instead, you hear “it looks like taxes are going to crush your retirement goals.”

This is a harsh reality that everyone who is nearing retirement or is already retired needs to think about now. Wait. Let me revise that statement: This is a harsh reality that everyone who wants to retire at any point in the future or is currently in retirement needs to think about now.

The old rule of thumb was to put everything you could back into your 401(k) pre-tax. After all, your taxes in retirement would be lower, right?

Do you remember Tax Economics? The equation is simple: Tax Revenue = The # of Taxpayers x Tax Rate. What happens if the number of tax payers goes down? Yep – the tax rate has to go up.

The U.S. Census Bureau has a report projecting our future population. Even at the highest projection of immigration, the age 65 and over group surpasses the working population by 2045. In the earliest projection, they pass the working population in 2029. 1 Plain and simple, this means the number of taxpayers is going down.

Now, let’s add some fuel to that fire. As I write this, Congress is about to pass another 2.3 trillion-dollar spending bill to add to our national debt of over 27 trillion dollars. This amounts to over $220,000 of debt per taxpayer.

What do you think our taxes are going to do?

I wish I could say I was done with the doom and gloom, but what about state and local taxes? They play a huge part of your planning as well. Over and over we have helped retirees relocate closer to their children and the main consequence is a higher tax load.

Even in a tax-friendly state like Texas, moving to another city could severely impact your planning. Let’s suppose you move from rural Blanco County (outside Austin) to Fort Bend County (near Houston). You would most likely pay more than double in property taxes for the same priced home – if you can even find the same amount of home for the same price.2

If you plan to move out of state, keep your shirt on. You better be doing your homework. Be thinking about their sales tax, income tax, state estate tax, state inheritance tax, property tax, excise tax, and license tax. After you have finished this assessment, don’t forget to look at the widow’s penalty. This could be devastating if you lost a step-up in basis on part of your assets or had a nasty income tax surprise.

And there is still one more thing – your taxable Social Security benefits and Medicare premiums will be based on your overall income. Let’s look at Bob’s scenario: He turns 62 this year and will be required to take money out of his IRA in ten years.3.  Due to this, he and his wife’s taxes will increase almost $48,000 in one year. Moreover, his Medicare premiums will go up over $7,500 in one year.

The good news is that there is hope! The worst thing you can do is think that there is no other way and do nothing about it. A little planning can go a long way. Bob, for instance, is on track to lower this tax bill by half.

The key to this planning is to do it early and do it often. Even if you can’t do it early, you can still do it often. After all – “a penny saved is a penny earned” —Benjamin Franklin


  1. The US Census Bureau has a report: A Changing Nation-Population Projections Under Alternative
  3. Projected 182K RMD 55,610 Social Security, 22,500 Dividends, 1,500 Taxable Interest, 25,000 Long-term Capital Gains and 17,000 Qualified Dividends, 12,000 Medical Expenses and 27,000 Other Itemized Deductions, pre- TJCA tax provisions


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