Missed Fortune Super Blog

A Savings Vehicle That Makes All the Difference

Missed Fortune – Will I be in a lower tax bracket when I retire?

Posted on | February 5, 2009

This is a common Baby Boomer Blunder.  There’s a nasty surprise awaiting those who think this way.

If you are expecting a pension, and you add Social Security and a piece of a qualified plan such as an IRA or 401(k) to it, your taxable income as a retiree probably will be as high as it was before you retired.

But you will have fewer tax deductions to offset that income, because you will no longer be putting money into those tax-deferred IRAs or 401(k)s.

In addition, you may no longer have dependents at home, for whom you were entitled to a tax deduction. If you insisted on paying off your mortgage, you no longer can deduct its interest payments either.

Add it all up. If your income stays the same, or even if it drops from $75,000 to $60,000, you don’t have the $15,000 in deductions that you used to get.

So you remain in the same tax bracket you were in before retiring — but because you must pay the extra tax, you wind up with fewer dollars to spend.

If you think this sounds wrong, go ask your retired mom, dad or friend whether their taxes dropped once they left their jobs.

A business acquaintance did this, and his mother, a former teacher, replied, “Son, I am paying taxes up the wazoo.  I pay more in taxes now than I ever did, and my income is less.”

Doug Andrew

Related Articles:

*Life insurance policies are not investments and, accordingly, should not be purchased as an investment

Be Sociable, Share!
  • more Missed Fortune   Will I be in a lower tax bracket when I retire?


Leave a Reply

Warning: Unknown: open(/home/content/36/3927036/tmp/sess_uajbskotnt2k8gvcq5mmthtjm4, O_RDWR) failed: No such file or directory (2) in Unknown on line 0

Warning: Unknown: Failed to write session data (files). Please verify that the current setting of session.save_path is correct () in Unknown on line 0