Managing Your Tax Bill in Retirement

You can start taking qualified retirement plan distributions at 59½ and your Social Security benefits at age 62. But should you? With today average life expectancy for men at 86.6 years and women at 88.8,1 it’s time to reassess the retirement timeline. If you’re a baby boomer, you should revise your retirement date to your 70^th birthday and maximize your Social Security benefits. Six months later, you’ll be faced with mandatory required minimum distributions (RMDs) from your qualified plans, but you can delay some portion of your RMDs as far out as age 85. But if you decide to retire before then and you need the money, you may want to investigate taking a reverse mortgage, a home equity loan or borrowing from your cash-value life insurance.2 The loans are generally tax-free and can be a retirement resource until age 70. You can repay those loans when and if your income increases later in retirement. 

If you don’t need the money because you’re working until age 70, consider non-qualified, tax-deferred annuities that permit your earnings to accumulate without taxation until you access the annuity.3 Remember, your original annuity deposit can also be accessed as tax-free return of basis. Watch the interview with Certified Annuity Specialist Liz Cornell http://rightonthemoneyshow.com/managing-your-tax-bill-in-retirement-liz-cornell/ These are just some of the basics of tax diversification you and your advisor can use to build a retirement distribution plan that can help you optimize your financial resources and keep more of your money.

¹ Changes in life expectancy for 65 year olds in the U.S. 2010 vs. 2014 Wall Street Journal 10/28/2014.

² Policy loans from a non-modified endowment life insurance contract are tax-free, provided the policy is kept in force for the life of the policy insured.

³ Annuities are not insured by the FDIC or any government agency. So it’s important to have your financial advisor review the balance sheet and ratings of the insurance company before you purchase an annuity.