Taxes: what you keep matters more than what you have
Two retirees can have the same income and very different amounts left to spend, because accounts are taxed differently:
- Traditional 401(k), 403(b), 457 and IRA withdrawals are taxed as ordinary income.
- Roth accounts can be withdrawn without tax when the rules are met.
- Social Security can be partly taxable, depending on your other income.
- Taxable savings and investments are taxed on interest, dividends and gains.
The order you draw from them, and when, can change your taxes for years. Some people convert part of a traditional IRA to a Roth in lower income years. That means paying tax now to avoid it later, so it only makes sense in the right situation. We coordinate with your tax preparer on decisions like these.
And one of Tim's favorite pieces of advice: don't laminate the plan. Tax rules change. We review and adjust.
Medicare: important, but not free
- Most people can sign up starting three months before the month they turn 65. Signing up late can mean a lifelong penalty, unless you have qualifying coverage from current work.
- You still pay premiums, deductibles, copays and prescription costs. Part B premiums are usually taken from your Social Security check.
- Higher incomes pay higher premiums, based on your tax return from two years earlier. A large IRA withdrawal or Roth conversion can raise them.
- Medicare generally does not pay for long term custodial care.
Coverage should be reviewed as your health and plans change. Our Medicare team can help you compare your choices.
Long term care: the cost most plans leave out
Help with daily living at home, in assisted living or in a nursing home can cost a great deal, and Medicare generally doesn't cover it. The common ways to plan for it:
- Traditional long term care insurance. Pays for care if you need it. Premiums can rise over time.
- Life insurance or annuities with care benefits. Some policies let you use part of the benefit for care, and pay the rest to your family if you never need it.
- Setting money aside. Some households plan to pay for care from savings, and decide in advance which savings.
Life insurance: still useful in retirement?
Sometimes. It can replace income a surviving spouse would lose, such as a pension that stops. It can pay final expenses or debts, or leave money to children, grandchildren or a cause you care about. And sometimes the policy you have no longer fits. We look at what you already own before suggesting anything new.
This page is educational. It is not tax, legal or investment advice, and rules change. We check the current rules against your own situation before you decide anything.