Tax-efficient retirement strategies
Heading into retirement with confidence can be easier if your strategy includes steps to help mitigate taxes. Even though your income is likely to decline, you still could be subject to high taxes if you’re not careful.
Do your (geography) homework
Tax rates vary widely state to state. Some states like Wyoming, Hawaii and Delaware may offer retirees the benefits of no income or estate taxes, and low property and sales taxes.1 If you live in a highly-taxed state — we’re looking at you, New Jersey and Illinois — you might want to consider whether living in that state makes sense for your situation.2 You might even follow the lead of retirees who opt to move abroad for lower-cost, tax-efficient lifestyles in countries like Costa Rica and Mexico.
Trim your expenses
Spend less, keep more — it’s a prescription for less stress and more confidence in retirement. But frugality has tax benefits too. Making modest, rather than major withdrawals from retirement accounts may keep you in a lower tax bracket. Here are ways to cut expenses at any age.
Investigate tax-efficient retirement income sources
Social Security benefits will only take you so far in retirement. To help fill the income gap, look into tax-efficient sources of guaranteed income:
Annuities3 provide a guaranteed payout for life, and your initial investment grows tax-deferred until the gains are withdrawn. By the time you receive annuity payments, you could be in a lower tax bracket. Savvy retirees may even use part of their IRA to purchase a single-premium annuity to help create more available income, while helping to potentially reduce the required minimum distribution (RMD). More on RMDs below.
Whole life insurance4 provides an income tax-free death benefit to your beneficiaries along with guaranteed cash value growth over time5 — earnings you can use to help supplement your retirement income6 — with tax-efficient loans that can be taken against the policy.7
Potentially save on your tax liability
With certain retirement plans, like IRAs, you have to withdraw a required minimum distribution (RMD) annually starting at age 73. In 2024, up to $105,000 of your RMD may receive favorable tax treatment if you transfer the money directly to charity. 8 It can be a way to do good while doing well on your taxes.
Check out these additional ideas on retiring with confidence and consider consulting with a financial professional to learn more about tax strategies during retirement.
