Your Tax and Retirement Planning Guide

Your retirement tax planning is arguably just as important as your investment management strategy. Whether you’re in pre-retirement or have already left the full-time workforce, your tax strategy usually involves a range of complex decisions regarding Social Security, pensions and retirement accounts. Retirement tax planning directly impacts your future cash flow.

Planning for taxes in retirement

Before you reach retirement age, consider some of the important financial and emotional aspectsthat may have future tax implications and influence your decision-making process.

Financial considerations

Leading up to retirement, it’s important to create a plan for financial readiness. Your financial advisor can help calculate how much money you need to retire and help create your retirement savings strategy.

An advisor can also help you weigh the pros and cons of your decisions. For instance, you might consider the feasibility of paying off your mortgage before you retire. If you’re thinking about retiring early, not only should you consider your income requirements, but you may also need to explore private insurance as you won’t be eligible for Medicare if you retire before age 65.

Finally, your advisor will stress-test your financial plan so you’re prepared for a diverse range of scenarios, both good and bad.

Emotional considerations

A successful retirement and tax strategy also involves some emotional preparation. It’s important to define how you plan to spend your time, engage with others when you’re no longer workingand pursue a meaningful, satisfying life in retirement.

There are many ways to approach the emotional changes ahead. Some people choose to wind down their careers by working part-time in the early years of retirement. Others focus on quickly replacing work habits and routines with new ones. It’s an ideal time to focus on health, hobbiesand other areas you’re passionate about, but may not have had time to fully explore.

Financial tax-planning strategies for retirees

With a smart overall retirement plan in place, it’s time to figure out how taxes will affect your finances. The goal is to identify attractive tax-planning opportunities and learn how to pivot from receiving steady paychecks to withdrawing tax efficiently from your investments. Here are two important things to consider:

1. Cash flow and tax rates

A significant change that comes with retirement is managing cash flow and income in a way that’s best for your tax rate and tax bracket. As a retiree, you’ll no longer receive regular paychecks. Instead, you’ll make withdrawals from your investment accounts to supplement income from Social Security and/or a pension.

Your financial advisor can help identify the best strategy for generating the requiredretirement cash flow in a tax-advantaged manner. For instance, after-tax accounts like trust or brokerage accounts can be managed to take advantage of favorable tax rates applicable to qualified dividends and long-term realized capital gains or to benefit from tax-loss harvesting during market declines.

Tax-deferred accounts like an IRA or 401(k) are taxed as ordinary income when money is withdrawn. If you’re starting retirement in a relatively low tax bracket, consider strategies to draw money from these accounts to take advantage of lower marginal tax rates or create an annual strategy for Roth conversions.

2. Retirement income decisions

Other elements of retirement tax planning include prioritizing when and how to elect to receive Social Security or pension benefits and how to plan for IRA Required Minimum Distributions (RMDs).

Although you may start receiving Social Security benefits as early as age 62, you’ll get a larger benefit amount if you defer to as late as 70 years old. Work with your financial advisor to see if waiting is appropriate for you.

With a pension, you’ll need to decide whether to elect annual payments or a lump-sum rollover, as both have different tax implications. You must also consider the need for survivor benefits.

Once you turn 72, you’ll start taking RMDs from traditional IRAs. Your advisor can help you navigate potential solutions to manage and minimize RMD-related taxes, such as by utilizing Qualified Charitable Distributions or developing a Roth IRA conversion strategy prior to turning 72.

Emotional tax planning strategies for retirees

Planning your retirement tax strategy can be emotionally difficult. Here are two areas where you may learn to focus on things you can control and navigate obstacles you can’t control:

1. Withdrawing portfolio funds

Transitioning from a regular paycheck to withdrawing funds from investments can be psychologically challenging, particularly if you’ve diligently contributed to your portfolio over the years. It may require a major shift in mindset to become comfortable withdrawing investment funds.

If you haven’t yet created and committed to a retirement spending plan, you risk depletingyour assets too quickly. Without proper guidance, a retiree may overspend their financial resources early, resulting in difficult adjustments down the road as income diminishes.

Whatever your situation, it’s critical to take a balanced approach to spending. It’s equally important to determine the right amount of income you’ll need to live your retirement dreams without jeopardizing your future financial security.

2. Managing stock market fluctuations

Another component of retirement tax planning is handling the financial ups and downs of living on investment returns. You might control when you retire, but you don’t control how the stock market performs.

Your financial advisor can help you prepare for market fluctuations. For example, what happens if the market declines sharply right before or after you retire? You need to make objective investment decisions without fear or other emotions. Obviously, this is easier said than done. That’s why it helps to work with a trusted advisor who, in difficult situations, can provide expert advice that empowers you to make rational investment decisions.

The bottom line

You can’t plan for retirement without planning for taxes. Consult your tax professional and an experienced wealth advisor who not only helps manage your investments but also helps you make the many complex decisions needed to manage and minimize taxes in retirement.

You’ve worked hard to accumulate your assets—are you ready to protect them throughout retirement? Contact your Corient Wealth Advisor and get started on a comprehensive financial plan.


Jake Erlendson, CPA, CFP

Jake Erlendson, CPA, CFP

Partner, Wealth Advisor

Jake is a Partner, Wealth Advisor in Corient’s San Diego office. He is dedicated to serving clients and delivering personalized investment and financial planning advice. Jake joined legacy firm Dowling & Yahnke (D&Y) in 2006.  He played an integral role in the development of D&Y’s Portfolio Management and Analytics Group and served on the Investment Committee. Jake holds the Chartered Financial Analyst (CFA) and CERTIFIED FINANCIAL PLANNER (CFP) designations. He graduated from the University of California, San Diego with a Bachelor of Arts degree in Economics. Jake grew up in the San Francisco Bay Area, but has called San Diego home for over 20 years.  He currently resides in Poway with his wife and two children.


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