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Tax-efficient retirement strategies

Retirement Read Time: 3 min

Heading into retirement with confidence is easier if your strategy includes steps to help minimize 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 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 relocating.2 You might even follow the lead of retirees who opt to move abroad for low-cost, tax-advantaged 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-advantaged retirement income sources

Social Security benefits will only take you so far in retirement. To help fill the income gap, look into tax-advantaged 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Annuities3 provide a guaranteed payout for life, and your initial investment grows tax-deferred until the gains are withdrawn.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 reduce the required minimum distribution (RMD). More on RMDs below.

Whole life insuranceprovides a tax-advantaged death benefit along with guaranteed cash value growth5 — earnings you can use to supplement your retirement income6 — with tax-advantaged 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 72. In some cases, up to $100,000 a year of your RMD may be income tax-favored if you transfer the money directly to charity. 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.

SOURCES:

1 10 Most Tax Friendly States for Retirees, Kiplinger, 2022.

2 10 Least Tax-Friendly States for Retirees, Kiplinger, 2022.

3 Contract guarantees are guaranteed solely by the strength and claims-paying ability of the issuing insurance company.

4 While the primary purpose of life insurance is death benefit protection, it is important to understand the advantages that cash value accumulation can provide to clients, including supplemental income during retirement. Policy benefits are reduced by any outstanding loans and loan interest. Dividends, if any, are affected by policy loans and loan interest. If the policy lapses, or is surrendered, any loans considered gain in the policy may be subject to ordinary income taxes

5 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

6 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

7 Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

DISCLAIMER:

This material is intended for general public use. By providing this content, The Guardian Life Insurance Company of America, and their affiliates and subsidiaries are not undertaking to provide advice or recommendations for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact a financial representative for guidance and information that is specific to your individual situation.

Have a Question?

Sam Duffey
Sam Duffey
Ashford Brokerage, CA License #0J09024, AR License #15480533 Director of Brokerage Sales
http://www.incomeisimportant.com (205) 843-9434

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