Video: Fundamentals of a Tax-Smart Retirement

Welcome, thanks for your interest in our planning videos. This is Kieran Byrne, I'm the founder and lead advisor here at MK Byrne & Co, and this video will discuss the fundamentals of Tax-Smart Retirement.

2 Key Objectives for Tax-Smart Retirement Planning

When we think about retirement tax planning, we have 2 objectives. First, we want to determine a sustainable level of annual spending for each client. Second, we want to fund that spending in a tax-smart manner which helps to reduce your taxes and preserve your wealth over time.

When you look at the chart above, there are a few key points to make. First, for most retirees, your income will have significant variability during the first 5 or 10 years of retirement.

In year 1, your income will likely be higher as it is your final year of employment. However, for most retirees, your income will tend to fall over the next few years prior to the start of your Social Security benefit. Soon after Social Security begins, retirees become responsible for taking required distribution from their IRAs and 401(k)s.

For those retirees who have large account balances, these distributions can be quite substantial. As a result of Social Security and required distributions, many retirees in their early 70s end up at high-income levels. These higher income levels can result in more federal taxes, higher Medicare premiums, and loss of valuable New Jersey tax benefits.

3 Ways to Maximize Your Tax Savings for Retirement

Ultimately, there are 3 ways we help retirees maximize their tax savings.

First, it's important to maximize your low-income years. This means we want to realize gains on stock sales and withdraw funds from retirement accounts at the low rates available in those first few years of retirement.

Second, once you enter your higher-income years, you want to carefully manage your income levels and tax deductions to avoid inadvertently making any financial move that creates a negative tax consequence.

Lastly, as you can see in the green-shaded area below, investment income tends to be quite volatile. This means it is critical to utilize a variety of planning techniques to exercise more control over your investment income each year.

In the next few videos we'll discuss the planning strategies that we use at each stage of the tax planning process. We hope that you find our videos helpful, and thanks again for your interest in our firm.