Early Retirement Blog

The I.R.S Doesn’t Want You To Read This…

If you hate paying taxes – retire.

By retiring, you can significantly lower your taxes, both in total amount and percentage. When you retire, you no longer pay a myriad of taxes, FICA, SSI, Disability, etc., all which can add up to a big chunk of your income. Also, when you retire, because you are no longer earning a salary, your income will drop. Possibly placing you into a much lower tax bracket.

And, depending on where you live and how you structure your investments, you could end up paying virtually no taxes in retirement.   I do not give investment advice, so please consult a tax professional, on how you can structure your investments in the most tax advantaged manner.

The point of this article is not to help you avoid paying taxes in retirement.    If you want the cops and firefighters to show up at your house when you call them, you should understand that their salaries come from your taxes, along with librarians and school teachers.

No, the reason for the article is to make you aware, that when you create a retirement spending budget, you should eliminate the taxes you will not be paying in retirement and reduce the taxes that you will still need to pay.

You will discover that the amount of savings you need for retirement could be dramatically reduced.

For example if 40% of your $80,000 salary goes to pay taxes, $32,000 of your income is going to pay taxes, leaving you with only $48,000 to pay for living expenses.

If you retire on a $36,000 retirement spending budget, and you are in the 21% tax bracket, you will be paying $7,500 per year in taxes.  That is a difference of $24,000 per year, or $2,000 per month less, in the amount of taxes you will be paying when you retire.

And you can pay even less in taxes when you retire.  If your retirement assets are divided 50/50 between U.S. Treasury Bonds and S&P 500, and you retire to a state with no income taxes, your annual tax bill could fall to as little as $2,700 per year.

Most people, don’t realize that they need much less savings to retire, because they won’t be paying as much taxes when they retire. So, don’t forget to properly calculate for taxes in your retirement spending budget, it can make a big and positive difference in your ability to retire early.

Visit the early retirement website to learn how to retire early and try our free retirement calculators.

Also Read:
How To Save $1 Million
Early Retirement Planning
Early Retirement Software