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Your tax bill: $321,050

money_in_toilet_800_clr_4526-1Your tax bill: $321,050

If you are a successful professional or business owner and your goal is to retire with $100,000 per year in retirement income, this is roughly what you can expect to pay in taxes over the course of your retirement.  (Let’s assume you retire at 65 and you or your spouse lives to age 90.)

How can this be your tax bill? Aren’t taxes supposed to be lower when you retire?

How it happens: When you contribute to a 401k, SEP, IRA, 403b you get a tax deduction now.  Which is good. However, you still have to pay those taxes. Just not right now. You pay them when you take out money at retirement. Any money you take out is taxed as ordinary income. Just like it is today.

While the tax deduction you get now helps to increase your current cash flow, when you retire your deductions are lower, kids are out, home is paid off…so you get hit with the full force of the U.S. tax code.

Solution: Save into taxable and tax free buckets to cut retirement taxes by 50% or more.

Take a balanced approach. Instead of waiting to pay all the taxes you owe on your retirement funds until later on, pay half of the taxes now so half of your money is tax free at retirement. The impact is huge. Consider this before and after example on $100,000 in retirement income:

Taxes Before

Taxes Before

Taxes After

Taxes After

 

 Savings:  $234,125 over a 25 year retirement. $9,365 per year.

Note on the “Taxes After” – the adjusted gross income is lower because the tax free income is not reported to the IRS. You are still taking out $100,000 per year and your spendable income increases. The other $50,000 is coming from a tax free strategy such as an indexed life policy. How this will work for you, depends on your retirement income and your situation. Either way, some tax free income is never a bad thing and you don’t want to end up with tax surprises in retirement.

For a more in depth look at this issue, check out  the  “Successful Professionals Guide to Wealth For Life”.  You’ll find quick and concise strategies for creating tax free income as well as case studies we have compiled over the last decade. Use the form below to download.

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How to protect your wealth from market losses and create tax free income
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About Matt Battaglia

Matthew is originally from New York and also grew up there. He graduated from the University of Massachusetts at Amherst with a Bachelors Degree. He has an extensive business career that started in his early twenties. Matt started in financial services five years ago originally on the operations and marketing side for through radio and other media. As a small business owner he can relate personally to the challenges the majority of his clients face daily. Having to budget for his business for years he understands all too well how important it is to have one’s finances in order and control debt. He lives with his wife Amy in their house in Tempe. Matt enjoys coffee, movies, golf, football, books (especially on history and business) and whatever his wife enjoys.

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