CALL US: (888) 440-2468

CALL US: (888) 440-2468

have an annuity question?
have an annuity question?

Keeping tax on your retirement income low (so you have more to spend)

How can you generate the same amount of money in retirement as other people, but have much more to actually spend? The “trick” is to keep the taxes on your retirement income low. This may not be as difficult as you think. But it will require some planning and coordinating, along with recommendations from an experienced retirement income specialist. Here’s what you need to know.

Types of Taxes You Could Face on Retirement Income and Withdrawals

First, there are different types of taxes that you could face on your retirement income and withdrawals. These are:
  • Income tax
  • Capital gains tax

Income Tax

The U.S. income tax system is progressive, meaning that the more income you earn, the higher percentage of income tax you will have to pay. Income tax rates are as follows (for tax year 2022):

Income Tax Rates in 2022

Tax Rate %SingleMarried Filing Jointly
10%Up to $10,275Up to $20,550
12%$10,276 to $41,775$20,551 to $83,550
22%$41,776 to $89,075$83,551 to $178,150
24%$89,076 to $170,050$178,151 to $340,100
32%$170,051 to $215,950$340,101 to $431,900
35%$215,951 to $539,900$431,901 to $647,850
37%Over $539,900Over $647,850


It is important to note that while the U.S. has been languishing in a low tax rate environment for many years now, that is likely about to change. Many people don’t know that over the past 109 years, the top federal income tax rate has fluctuated between a low of just 7% and a high of 94%. In forty-nine of these years, this rate has been at 70% or higher. So, it is essential to have a plan in place for reducing or eliminating income tax that may be due in the future on your retirement income.

The Top Federal Income Tax Rates in the United States from 1913 to 2022


Source: Inside Gov

Capital Gains Tax

Investors and retirees are subject to capital gains taxes on the profit from the sale of assets. The amount of tax that is due depends on how long the asset was held before it was sold, as well as your tax filing status. For instance, profits on assets held for less than one year are short-term capital gains. These are taxed at ordinary income tax rates. However, assets held for longer than one year are subject to long-term capital gains tax rates. These rates are 0%, 15%, or 20% (in 2022).

Long-Term Capital Gains Tax Rates (in 2022)

Tax Filing Status0% Tax Rate15% Tax Rate20% Tax Rate
Single$0 to $41,675$41,676 to $459,750$459,751 or more
Married filing jointly$0 to $83,350$83,351 to $517,200$517,201 or more
Married filing separately$0 to $41,675$41,676 to $258,600$258,601 or more
Head of household$0 to $55,800$55,801 to $488,500$488,501 or more

Source: Internal Revenue Service

Taxation of Social Security Retirement Income Benefits

Many retirees are also not aware that up to 85% of their Social Security retirement income benefits could be taxable. The amount of this taxable Social Security income is based on how much taxable income you generate from other sources. There are several criteria that can make Social Security income subject to income taxation. These can include:
  • Whether you’ve reached your full retirement age (FRA) when you claim your Social Security retirement benefits
  • The amount of income you generate from other sources (if any)
With that in mind, based on your specific situation, you could be required to pay tax on a percent of your Social Security benefits (in 2022), if you meet the following:
  • You file your annual federal income tax return as an individual and your combined income for the tax year is:
  1. Between $25,000 and $34,000 (if so, up to 50% of your benefits may be taxable)
  2. More than $34,000 (if this is the case, up to 85% of your Social Security benefits may be taxable)
  • You file a joint income tax return with your spouse, and you have a combined income that is:
  1. Between $32,000 and $44,000 (in this case, up to 50% of your benefits may be taxable)
  2. More than $44,000 (here, up to 85% of your Social Security retirement income benefits may be taxable)
  • You are married and you file a separate tax return.
Your combined income is equal to your adjusted gross income plus any non-taxable interest earned, plus one-half of your Social Security retirement income benefits.

How to Keep Tax on Your Retirement Income Lower

The good news is that with the right type of planning in place, you could keep the tax on your retirement income lower so that you’ll have more net income available to spend. Some of the strategies for doing so include the following:
  • Draw from tax-free income sources, such as the Roth IRA and loans from cash-value life insurance policies
  • Wait to file for Social Security until at or after your full retirement age
  • Pay attention to income tax deductions and claim them whenever possible (these can include medical deductions, mortgage interest, and charitable contributions)
  • Try to keep total income from creeping into a higher tax bracket
  • Withdraw long-term capital gains before short-term capital gains

Do You Have a Tax-Efficient Retirement Income Plan in Place?

Because everyone’s situation and objectives are different, not all tax-reduction or elimination strategies are suitable for all investors and retirees. Therefore, it is recommended that you discuss your specific needs with a tax planner and a retirement income specialist. At Annuity Gator, we focus on helping consumers build retirement income plans that provide security and that are tax efficient. If you would like more information, set up a time to chat with one of our experienced professionals by calling (888) 440-2468 or sending an email to our secure online contact form. We look forward to assisting you.

Keeping tax on your retirement income low (so you have more to spend)

Leave a Reply

Your email address will not be published. Required fields are marked *

Privacy Settings
We use cookies to enhance your experience while using our website. If you are using our Services via a browser you can restrict, block or remove cookies through your web browser settings. We also use content and scripts from third parties that may use tracking technologies. You can selectively provide your consent below to allow such third party embeds. For complete information about the cookies we use, data we collect and how we process them, please check our Privacy Policy
Consent to display content from - Youtube
Consent to display content from - Vimeo
Google Maps
Consent to display content from - Google
Consent to display content from - Spotify
Sound Cloud
Consent to display content from - Sound