Discover Tax and Saving Strategies Your Plan Retirement!

Discover Tax and Saving Strategies Your Plan Retirement!

If you think the fold of working life frees you from taxes, you should think again, because the vast majority of income you receive in retirement may be subject to taxes and reduce your income. That is why it is necessary to establish different strategies to minimize the tax impact on your finances.

In most of the cases, the principal source of retirement income is Social Security, but if you have planned your retirement and also established other plans for retirement as 401(k), IRAs, annuities, etc. you will begin to enjoy additional income but consequently pay taxes.

Social Security Benefit

You have probably contributed to fund of Social Security for all the years you have worked. At retirement age, you can begin to make withdrawals, but they may be subject to income tax if the income from other sources exceeds a certain limit.

Currently, although you can begin making withdrawals upon reaching the age of 62, note that the benefits would be considerably reduced if compared to the amounts that you would receive to begin making withdrawals at the age of 67, which is the full retirement age, so it would be better to wait a bit.

Upon receiving Social Security benefits, your taxes will be determined by the following conditions;

If you declare your taxes individually, you will have the following situations;

  • In case your income is less than $25,000 a year, you will not pay taxes.
  • If your combined income is between $25,000 and $34,000, then upto 50% of your benefits will eligible for taxation.
  • In case your income goes beyond $34,000, up to 85% of your benefits will be subject to tax.

If you declare your taxes altogether, you will have the following situations;

  • If your combined income is less than $32,000 per year, you will not pay taxes.
  • In case your income is between $34,000 and $44,000, 50% of the profits will be taxed.
  • If you are over $44,000, up 85% of the profits will be taxed.

These plans allow you to make withdrawals after age of 59 and a half years without paying 10% penalty for early withdrawal, but remember you will pay federal taxes, state taxes unless it is a Roth IRA whose contributions have already been taxed.

How to cut taxes during retirement?

Since you know the main sources of retirement income, you can now start taking action to reduce your taxes including the following;

  • Detail the expenses that qualify for a tax deduction, especially if you still pay interest on your mortgage, and make donations to charities.
  • If you are over 65, you can get a tax credit.
  • You can invest in tax-free instruments such as municipal bonds rather than traditional bonds and corporate bonds.
  • If for additional income, you offer a service, it would be best to do it as an established business, because as business there are many expenses that can always infer that they are related to the activity you do as internet, phone, publications, travel, etc.
  • Consider moving to a state with lower taxes and lower costs.
  • Consult a good tax advisor or financial planner.

For many years, you have saved and worked hard to enjoy your retirement, therefore, it is advisable to plan a strategy to save every penny you have earned so far.

The average broker-dealer firm offers financial advisors a full range of annuities to choose from. The average advisor is comfortable presenting both fee and commission-based annuity products to clients looking to start cashing in their retirement accounts. Therefore, it would seem that the only missing piece of the puzzle are the investors themselves.

Investors are missing because far too many of them are scared away by annuities. All a financial advisor has to do is mention the word annuity and the client’s eyes will glaze over. Push too hard and the client will run away.

So what’s the deal? Why are investors afraid annuities, and what can be done about it? Below are five things to consider as a securities broker or financial advisor.

1. A Lack of Resources

The principle of the annuity is simple. An investor gives the insurance company a certain amount of cash now, with the expectation of guaranteed income later. Investors essentially purchase annuities the same way they might purchase bonds, which can be scary to clients with limited financial resources. Turning over tens of thousands of dollars in the hope of getting guaranteed income for the next 20 to 30 years challenges the concept of trust.

2. A Client’s Age

Another big thing for investors is age. Some are afraid they are too old to get the most out of an annuity investment while others think they are too young. What clients do not know is that there are now enough annuity products on the market to cover investors of all ages.

3. Too Low a Return

The rate of return represented by the average annuity has been an Achilles heel for decades. It’s true, annuities do not pay stellar returns. However, they aren’t intended to. Investors get low returns because they do not understand how annuities are supposed to work.

4. Too Many Unknowns

Fear of the unknown is a normal and healthy thing. Where annuities are concerned, one of the big reasons they scare people is because they are largely unknown. Annuities are complex, hard to understand, and awash with technicalities that can make decisions fleeting for even the most experienced advisor and his/her broker-dealer firm.

5. Fear of Financial Distress

Lastly, the idea of locking up tens of thousands of dollars over decades scares some investors who are afraid they might need access to their cash much sooner. The fact is that annuities are not liquid. And unfortunately, the mindset of the modern investor is heavily weighted toward liquidity these days. Younger investors have lived through a profound financial crisis that illustrated just how quickly investments can disappear.

Education Is the Answer

All five reasons for fearing annuities have some element of truth to them. The key for financial advisors and brokers is to not dismiss client fears as being unfounded or unreasonable. They are neither. Rather, it is to educate clients about the benefits of annuities, how they work, the risks involved, and so on.

Western International Securities says that educating clients about annuities eliminates the unknown. Walking them through each of their options helps them better understand what they are investing in. With a good explanation of how an annuity fits into a client’s overall retirement strategy, it is much easier to motivate him or her to at least think about an annuity purchase.

Investors fear annuities. They have for quite some time. So rather than giving up on them altogether, broker-dealers and their financial advisors should work on ways to give their clients a better understanding of how annuities work. Annuities are still good investments if chosen wisely and used properly.


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