Tax-Free Retirement: Why Does It Matter? 🤔

Tax-Free Retirement: Why Does It Matter? 🤔

October 18, 2020
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Most people have not been planning for a tax-free retirement.  Many do not know it's possible.

They have been accumulating assets; they have not been thinking about distribution. And...they usually have accumulated assets in tax-postponed accounts.  That tax will be paid at some unknown rate upon withdrawal.

But distribution is all about income. Not assets. The question is: how do you turn your assets into a reliable, long-term income stream?  This is not a question your main street advisor is generally equipped to handle well. And few understand the tax implications.  But they are not hard to understand. 

So, how much does it matter if you can become tax-free in retirement?  (besides not having to worry about the ever-changing tax laws, the gridlock in Washington, etc!).

Let's look at a few numbers - an actual case.  

This is a couple age 57, who wants to retire at 62.  They have $460,000 in an IRA.  

They expect to have a total of $48,400 in Social Security benefits annually

If they continue to draw only from their 401K: SS will be 85% taxable (say at a 30% State+Fed rate) => $12,342 in taxes paid annually. 

But, if they get to tax-free status, all the Social Security is tax free.  They plan to live on $60,000 per year, so this is 20% of their lifestyle, or the difference between $4000 and $5000 per month.  Over a 30-year retirement, this is $370,000 they can keep and use themselves. 

Here is another way to look at it...

If we needed $12,342 to fill the lifestyle 'gap' - using the optimistic "4% rule" for simplicity - we’d need $308,000 in an account somewhere.  $308,000 X .04 = $12,320.  In other words, this couple is able to live a lifestyle they could never do if paying taxes, unless they had saved and additional $300K on top of the $460K they have been able to save. 

Regularly, I see cases where couples will be able to make their assets last 5-7 years longer, if they can become tax-free in retirement. 

Can you see how getting tax-free in retirement is HUGE?

Contact us today to see if this is possible for you.

Join the Tax-Free Income for Life movement and kick the IRS out of your retirement!

Bucket 3: Tax Me Never — Archstone Financial