Taxes are a fact of life. They don’t go away, even when
you’ve finally retired. Once you’ve retired, your taxes will be calculated
based on your income. As such, it’s important to have an accurate estimate of
how much taxes you’ll have to pay in retirement. That way, when you’re planning
for retirement, you can plan fully and thoroughly.
It’s important to remember that, if you’re like most people,
you’ll receive several different types of income in retirement, and each income
type will have its own particular tax rules that apply to it. Thus, you’ll need
to know not only what your approximate income will be but also the types of
income- some of the common ones are discussed below- you’re likely to have and
how they will affect your taxes.
Social Security Income
You will likely have social security income in retirement.
In fact, for some people, this is their only income source. If that’s the case
for you, then you probably won’t have a tax bill during your retirement years.
If, however, social security income is one of a few
different types of retirement income that you generate, then some of your
social security income will likely be taxed. Several factors will determine how
much of your social security income is taxable, but it can vary from 0% to 85%,
so it’s definitely smart to make sure you’re doing all the figuring right and
that you’re paying the correct taxes on your income when applicable.
Pensions
If pensions are providing part of your income, then you can expect
to pay taxes on this money. Basically, any money you put into your pension that
wasn’t taxed will be taxed when you withdraw it.
There are ways to make paying pension taxes easier, however,
such as automatically having taxes withdrawn from the amounts you receive.
Furthermore,you can also avoid taxes by putting already-taxed money into the
pension. It’s smart to work with a financial adviser to find the best way of
handling your pension taxes for your particular situation.
These are just two of many types of income that you may have
available to you during retirement. It’s important to consider all possible
types of income you may have and the way in which they will be taxed. If you’re
having trouble doing all of that on your own- and it definitely can be an
arduous process- don’t hesitate to seek help and retirement planning advice
from a tax professional.
