April 21, 2014

Don't forget taxes in retirement income planning!

Investors looking at a substantial retirement account balance need to remember that they will owe taxes on most of their income in retirement. Funds in employer sponsored plans (401k,403b, 457) and traditional IRAs will be subject to income taxes in retirement, substantially reducing the amount available to spend. "Dan Caplinger, The Motley Fool's director of investment planning, looks more closely at this disaster scenario that results from people overestimating how much in retirement savings they actually have. Dan notes that most people use traditional IRAs and 401(k) accounts to save for retirement, taking advantage of the tax-deferred growth that they offer. But those accounts require you to pay tax on the amounts you withdraw during retirement, and many people fail to take the tax liability into account in evaluating their retirement nest eggs. Dan notes that you can overestimate your actual after-tax retirement savings by anywhere from 10% to 40% or more, depending on how much you pay in taxes." Watch the video at this link: 

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