Is Tax Planning Missing in Your Retirement Planning?

February 18, 2020

Retirement is something we all dream of one day. Days spent doing what we want, traveling, seeing family, and operating on our own time-table. However, for many, retirement is a dream — some people don’t believe it will be a reality for them. Sadly, of those who are planning, they may be disappointed that what they are setting aside won’t actually provide for them the lifestyle that they want. 

Today on the Advisory Group West blog we are going to talk about planning for retirement and specifically, how tax planning should be a part of your retirement planning. Planning for retirement should include all aspects of your finances because they all have an effect on the other. Simply keeping money in your mattress won’t cut it, and neither will saving blindly. Retirement planning has to be strategic and proactive. 

Learn about how tax planning has to be a part of your retirement planning, as well as how tax planning can affect your current saving for retirement on today’s blog.

Retirement Planning 101: Tax Edition

Nearly everything can have an effect on retirement planning. Current salary, spending habits, emergencies, debt, and more. However, the way you are paying for your taxes might also be playing a part. 


“But in this world nothing can be said to be certain except death and taxes.”
~ Benjamin Franklin

As Benjamin Franklin’s quote references, there are very few certain things in this world other than death and taxes. Everyone has to pay taxes, but it’s the way in which you pay taxes that can be altered to your advantage. Many Americans pay too much in taxes and considerably so; by changing the way they pay taxes and optimizing their investment portfolio (making it tax-efficient), many may be able to pay less taxes now and less taxes in retirement. 

How, so? 

It’s all about timing, taking advantage of the right deductions, and using the right type of investments for your specific needs. To learn more about the basics of tax planning read one of our latest blogs, Tax Planning: How to Prepare for Taxes At the End of the Year.”


To begin retirement planning with tax planning, you must first start with creating a concrete goal — a goal for how much you will need to live on during retirement. You will need to decide on the type of lifestyle you desire in retirement, anticipate the amount of healthcare you may need, and any other expenses you may have. 

Once you’ve decided on a goal, you will most likely want to consider where your income will be coming from — and how it will be taxed. In our last blog, “How Tax Efficient Are Your Investments?” We discuss investment types and how and when each will be taxed. 

  • Taxable investments are taxed when you acquire the gains
  • Tax-deferred investments are taxed when you withdraw your investments — usually during retirement
  • Tax-exempt investments are those investments that will not be taxed

In most cases, utilizing a variety of these types of investments can be beneficial as you can not only enjoy all the benefits that these investments provide, but also you can have more control over when you are taxed. 

Key Points: 

  • Tax-deferred investments can help you avoid a higher tax-bracket now as you save, as you will pay taxes later (when you withdraw during retirement)
  • Taxable investments can help you avoid a higher tax-bracket during retirement (as you have already paid taxes on these investments)


How Realistic Is Your Goal? 

Deciding on a goal for retirement is more than just figuring out what kind of lifestyle you wish for and potential expenses. There are a variety of other factors that you need to take into consideration including: 

  • All possible sources of income
  • The effect of taxes 
  • The effects of inflation
All Possible Sources of Income

It is not only beneficial to consider all possible sources of income so you get the most out of all investments, but also how it might affect your taxes. Additional sources of income can cause you to be propelled into a higher tax bracket. As a result, you may end up paying a greater percentage of taxes. When you invest in tax planning and understand all sources of income and how it will affect your taxes in retirement, you can rest assured that you will have enough money for your lifestyle.   

The Effects of Taxes

Depending on your retirement income and when it has been taxed, you may have to divert some of the money that you thought would be money-in-your-pocket to pay annual taxes. As a result, you will have to save a considerably greater amount of money as not all of your savings will be just for living on and pleasures during retirement. Like the example in the video above: you have $75,000 for retirement — is that money before or after taxes? If you still need to pay taxes, you will need $90,000. As you consider your retirement savings goal and your investment portfolio, be sure to think about taxes. 

What Is Inflation?

Taxes aren’t the only thing that you have to think about when it comes to analyzing your retirement funds. You also must consider inflation as well as similar factors such as the rising cost of living. Often planning for 3% rise, inflation can be a productive way to offset this “cost.” Using the above example, if you have already had to up your retirement savings goal to $90,000 and you haven’t even considered inflation . . . . You will need to up your goal to $140,217. 


In our last blog post, “How Tax Efficient Are Your Investments?” we dove into how taxes affect our investments and how to create a tax-efficient portfolio. There are very few investment options that are tax-free; so in other words, you have to pay taxes on your income and gains sometime — you get to decide when which is dependent on the type of investment product you choose. With this in mind, you have to think about when you will be paying taxes and how that will affect your retirement savings.   

When Do You Pay Taxes?

There are a variety of savings options and investment products to utilize to save for retirement: there isn’t necessarily one that is better than the other — it depends entirely on your needs and which provides the best benefits for you. There are three tax-flavors of investment products: 

  • Taxable – paid as you acquire your gains
  • Tax-deferred – paid as you withdraw your savings
  • Tax-free/Tax-exempt – taxes aren’t paid on these beneficial, but limited investments

What Is Best?

There is not a one-size-fits-all best-time to pay taxes for retirement. It is best to discuss your options with a tax advisor. However, here are some basics you should know about how each investment type works: 

  • Taxable – you pay taxes now as you have flexibility for how much and when you withdraw as well as a plethora of other benefits
  • Tax-exempt – since you pay taxes on these accounts then you withdraw from them, they, in theory, allow you to pay taxes when you’re in a lower tax bracket which will result in paying less taxes
  • Tax-exempt – these savings accounts are for specific purposes and can only be used for those purposes but can fill a need within your financial strategy

How Tax Planning Now Can Affect Your Retirement Savings

Tax planning can benefit you not only in regards to retirement, but as you save retirement. Tax planning can allow you to pay your taxes at the most opportune time — allowing you to often save money. It can also find the areas in which you might be overpaying in taxes, and help you choose the most advantageous investments for you. To put it simply, tax planning can help you pay less in taxes so you have more to invest and save for retirement. 


  • Awareness of tax law changes, effects of inflation
  • Informed decisions about the sale of assets
  • A portfolio aligned for best after-taxes return
  • Ability to accelerate or delay losses and gains
  • Ability to stay within current tax bracket
  • Pay state-estimated and real estate taxes early if it is advantageous

Learn more about tax planning, when you read one of our latest blog posts, Tax Planning: How to Prepare for Taxes At the End of the Year or check out our tax planning page on our website.

It’s Never Too Late

Are you nearing retirement age and know you’re not prepared? It’s not too late to change your situation. Advisory Group West specializes in helping near-retirees retire and stay retired. You have options and we would love to work with you. To learn more about what we can do for you and if we are good fit for your needs, book a complimentary Cornerstone Vissions™ Strategy Session today. We offer a variety of services in addition to retirement planning and tax planning such as: 

The tax advisors and financial advisors of Advisory Group West wish to provide a holistic planning experience so that your finances and financial goals match your values. 

Visit our website to learn more about us our approach, check out our resources, and book a complimentary Cornerstone Vissions™ Strategy Session.