Retirement and Taxes
During this time period when there are so many baby boomers that are entering retirement it is important to remember that you still have to pay taxes when you are retired. There is no age exclusion from income taxes!
As you are doing your retirement planning and deciding what healthcare plan you will choose and determining how much your Social Security Benefit will pay it is important to remember that you may have to pay taxes during retirement. Most people generally decide to retire when they are close to paying off their house or when they qualify for Social Security Benefits so there are dramatic income changes that occur during that period. For example, if you are close to paying off your home mortgage then you will have a decreased mortgage interest deduction then in prior years and will not be able to take advantage of that deduction. Also, once you stop working you will not be able to claim job expenses so there is a better chance that you may not be able to itemize your tax return. This will lead to a higher income tax bill. Additionally, most people do not have any taxes withheld from their Social Security payments because they don’t think their Social Security is taxable. Well, depending on your other sources of income up to 85% of your Social Security Benefits can be taxed at your Ordinary Income level. Finally, with the cost of living increasing every day it will be harder to maintain your chosen lifestyle with a fixed income so you may decide it is necessary to get a part-time job or go back to work completely. This additional income will also add to your tax burden during your retirement years.
So the solution to all of these issues is to ensure proper tax planning prior to retirement and throughout. We specialize in helping individuals close to retirement or within retirement calculate how much money needs to go towards taxes. Contact us today to help guide you through this life changing event.