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How Tax Planning Changes Through Four Stages of Retirement Part II - Developing a Solution

How Tax Planning Changes Through Four Stages of Retirement Part II - Developing a Solution

| August 17, 2020
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Did you catch our last post about the first steps in understanding how taxes change through the different stages of retirement?

If so, glad you’re here to continue on with the next part: 

Developing solutions!

So, because your tax exposure will change throughout the different stages of retirement, you’ll need a strategy that anticipates both traditional taxes AND possible taxes, surcharges, and penalties related to Social Security, Medicare, and other income sources.

That means you’ll need an informed and proactive plan that addresses how you create your income in retirement. 

My goal is to introduce you to the major aspects of such a strategy and show you the challenges we all face, and then explain what makes up a workable solution to our retirement tax problem.

The first step is to develop an understanding of the types of “taxes” you may face. What do I mean by “taxes”? I’m talking about all the costs that can increase as your income does, including some that aren’t actually called a tax. 

To me, if your cost goes up as your income rises, it’s a tax in my book.

You also need to understand the retirement expenses you’ll face. And you’ll need to create a strategy that will help you decide which of your assets to tap first, how much you should be taking from those assets, and when those distributions should occur. Getting this right will help you pay as low a tax rate as possible.

Before we go on, here are our four stages of retirement we’ll discuss. (These are rough ranges and descriptions. Your experience may differ. This is just a framework for discussing our topic):

As you will see, there are a wide range of issues that must be planned for in each phase and this can be a lot harder than it seems because of...retirement surprises.

Retirement is full of surprises! And even the best planning will divert from reality at some point. 

Here are a few of those surprises that may occur:


People tend to view their future costs in current dollars, and don’t always anticipate how those costs grow with inflation. Think back 30 years ago to the cost of a gallon of milk, or a gallon of gas, or a visit to the emergency room. Now think about those costs today and what they’ll grow to over the next 30 years when you’re not working. That’s inflation.


Many people end up living far longer than expected, and that requires more money at a time when it’s difficult to work. How long do you think you will live?


Many people also underestimate how much money they need to maintain a pre-retirement standard of living. And who wants to see their standard of living drop? 

Health Care

The 10,000-pound gorilla. That includes your out-of-pocket payments for services and drugs plus Medicare and insurance costs, which keep rising.

Now at this point, you may be thinking, “Okay, so what’s the first thing I need to understand about retirement and taxes?” Well, here it is:

Know your after tax retirement savings BEFORE you retire.

You have to know what your “after-tax” retirement savings picture looks like before you actually retire. Check out the comparison below:

The chart shows you the cumulative after-tax amounts you could expect to receive from a $500,000 IRA earning 6% per year, at various tax rates. And as you can see, the lower your tax rate, the more you keep. Simple in theory… difficult in practice.

Now you may be thinking, “Okay, my accounts may not be worth as much as I thought, but I’ll have a steady flow of benefits from Social Security to supplement my income and I’ll have Medicare to pay my health costs." 

But one thing you need to understand when creating your retirement tax strategy is…

Social Security and Medicare have their own “tax traps” that you need to plan for as well.

That is precisely what we will be covering in our next part of this series. Stay tuned for more on social security and medicare and how to understand the traps!

Advisory services through Capital Advisory Group Advisory Services LLC and securities through United Planners Financial Services of America, a Limited Partnership. Member FINRA and SIPC. The Capital Advisory Group Advisory Services, LLC (CAG) and United Planners Financial Services are not affiliated.

The views expressed are those of the presenter and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation. Neither United Planners nor its financial professionals render legal or tax advice. Please consult with your accountant or tax advisor for specific guidance.

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