Millions of Americans are approaching their retirement these days, as the vast majority of members of the baby boom generation are now at least 55 years old, and some 10,000 turn 65 every day. With this in mind, many might want to turn an eye toward getting their finances in order. But another important aspect of living well once retirement comes is making sure they're prepared to handle the changes that are likely to come in terms of their tax status.
Perhaps the biggest change that comes for many retirees is the simplest: The loss of income they typically see when they call it a career, according to a report from CPA Practice Advisor. In general, the amount of money a consumer has coming in after they retire is about 80 percent of the income they enjoyed while still working. Often, this new income is often taken from a number of places, such as Social Security payouts, and any retirement savings the person might have built up over the course of their career, such as through a 401(k) or IRA.
Of course, each person's case is different, and as a result the ways in which they will be affected can vary widely, the report said. Depending upon the specific type of retirement account they had, they might have to pay more - or less - than they might have planned in taxes on those withdrawals, and for the most part this is something that should be researched well in advance.
What else can be done?
If consumers think they might be able to live on their retirement savings alone for a few years, many experts advocate waiting to begin taking withdrawals from Social Security, the report said. This will change tax liability, of course, but it will also increase the monthly payout from that account down the road; the amount a person has in this regard is finite, and the longer they wait to tap it, the smaller the number of months for which it is being reduced.
When considering all these possibilities, consumers should always try to talk to a reputable tax professional early and often to make sure they are fully prepared for whatever circumstances arise when they finally pull out of the workforce for good.
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