Will Taxation Affect My Income

How will taxation affect my income if I outlive my spouse?

As a couple, you’ve enjoyed the tax incentives that come from combining your income. If you’re retired, you’ve probably made plans based on the taxes you pay as a couple. Once one of you lives alone, all that changes. Tax rates are higher for single people. The increase can significantly affect retirement plans. The good news is, with some forward thinking, you can offset the impact and continue to live a comfortable life. Talk to a BlueRock Wealth advisor today to determine a plan that works for you.

Read a client story about the way one client restructured her retirement plan to offset taxes.

How will taxation affect my income if I outlive my spouse?

Ellen hadn’t thought much about living longer than her husband Ralph, until tragedy struck her mother.

Just as Ellen and Ralph were coming up to retirement, Ellen’s father passed away. Over the next year, Ellen watched her mother suffer from the financial changes that resulted. When they were a couple, her parents paid about $5,000/yr in combined taxes on an income of $60,000/yr.

As a widow, her mother lost the tax advantages she had as a wife. Even though she was now able to live on a reduced $48,000/yr, her taxes as a single person increased to nearly $12,000/year, leaving her living off less and feeling vulnerable. Ellen wanted to know if she could avoid her mother’s fate, especially with Ralph’s retirement around the corner.

The BlueRock Wealth Solution

We showed Ellen that taxation in retirement can be much more complicated. And tax advantages can vary considerably, depending on your marital status.

Together, we worked out a plan to make Ellen and Ralph’s retirement plan more tax efficient. For example, we showed her that different stages of retirement can be taxed in different ways – to her advantage. Our approach looked at their increased income sources at retirement, the opportunities at various stages of retirement, and how the unexpected – such as the death of a spouse – can be addressed. We suggested adjusting their draw from taxable sources now, while their combined rates were lower. That decision would reduce the tax burden on the surviving spouse later.

Then we suggested that Ellen and Ralph share what they’d learned with their children, so they’d be just as prepared when the time came.

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