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Why Tax Planning for Retirement is Non-Negotiable

Nobody enjoys tax planning. The only thing less joyful perhaps is having a tooth pulled or estate planning. However, if you are entering into those years where retirement is on the near horizon, tax planning for retirement is absolutely and essential task—unless you enjoy the thought of your hard earned money and business equity evaporating into the always welcoming hands of the IRS.

Tax planning is essential as it helps you make those big decisions that impact behaviors, from spending to how your business will exit, pass to another generation, or be sold. It also helps to determine your savings needs, spending habits, and even how you treat other real property you may own. For these reasons and more, it might be time to consider hiring a retirement planning consultant to help you sort things out.

Retirement Goals

Establishing your retirement goals is a good, foundational start to your planning. Ask yourself and your spouse (please don’t assume that your spouse will be on board with your plans!) about dreams and wishes once career days are done.

Here are a few important decisions to discuss:

  • What do you want to do in your retirement?
  • Where will you live?
  • Do you expect to maintain your lifestyle?
  • What kind of hobbies do you anticipate enjoying?
  • What sort of investment will those hobbies require?
  • Do you have other maintenance or debt obligations (like mortgages, college loans, or pending nuptials of children) that could impact your retirement savings?
  • Do you plan to continue working after retirement? 

Asking these questions is the first step to being able to develop a budget for your retirement years. In order to live in the style and comfort you are accustomed to, you need to be able to understand the cost of your ongoing obligations. Many couples realize that even with aggressive retirement savings, maintaining a lifestyle they have become comfortable living may not be possible without an income stream. Your goals don’t need to suffer, however, but they may need to be altered, or choices made to prioritize what is truly important to your happiness. The point is, with your retirement goals understood, you have facts needed to develop a plan.


Every dollar saved is important in retirement. If you have a high take-home income, and expect to maintain your lifestyle and spending habits in retirement, your long-term savings will need to be significant.  If not, you need to make some hard decisions about today’s spending, emergency savings that may be required, or other adjustments in lifestyle and plans to accommodate a more realistic and sustainable life on a budget.  If you are younger, this is the perfect time to move money into savings, particularly a ROTH IRA, where you pay the income tax today and  make withdrawals tax-free after retirement.

Spending Analysis

This is the difficult part. Most people don’t look too hard at their spending habits. Credit card charges might be reviewed occasionally to see if there are erroneous charges, but what about the interest you are paying?  Shopping for a lower price credit card might save you hundreds of dollars in interest each year, especially if you keep a large balance. And stop charging (and keeping a balance) your credit card for perishable items like meals, gasoline, and routine services. Instead, pay cash, or use your debit card. Those cash back cards are fine, but not if you are letting them charge you 29% interest. That extra $500 a year in credit card interest, if placed in your retirement investment savings for 25 years can blossom into thousands of extra cash when you need it in retirement.

You may also discover you have memberships that you never use, or waste money on items that don’t really add value to your comfort or enjoyment. There is an energy and excitement to be gained by rejecting this type of spending, and rechanneling it into savings that builds your future. Every dollar counts!

Another consideration is how you buy things. Especially big ticket items, such as cars and appliances. Do you buy on impulse? Or when the item is beyond repair and you are forced to act? Getting a full life from an appliance or vehicle is great, but being forced to make a purchase rarely saves you money. There is a balance between value and economy. Car buying, for example is where many families end up spending way more than they need to, only because they act on impulse, or out of dire necessity. How? Because dealers will work hard to extract as much money as they can from the transaction, from financing to trade-ins, extended warranty options and more. If you arrange bank financing from your own bank prior to your purchase, you can almost always find a better option.  The cost of financing needs to be viewed in its total, not just monthly payments.  Saving $100 a month sounds wonderful, but not if you are extending payments from 60 months to 72. 

The point is, smart buying is just as important as smart savings. Some people will forgo ever buying a new car in order to save instead for a vacation home that might become their retirement home. Or, to fund their retirement account closer to their budget goals. The choices are there, but they require some discipline, and sometimes, a bit of short-term hardship.  Then again, it is not really hardship if you are chasing your dream retirement goal, is it?

Business Assets

Whether you own a business, a part of a business, or perhaps investment real estate, business assets play a huge role in your retirement—and require tax planning to maximize the value of those assets come retirement time.  How—and when—you liquidate your business assets can have an enormous impact on your tax liabilities. There are ways to mitigate this issue, however, and a heart-to-heart discussion with your tax planning professional is essential to making the right moves to protect and maximize your business asset’s value.

Other Revenue Streams

Do you own art, precious metals, or passive investments such as patents, intellectual property, or collectables? Many people find these investments much more enjoyable than traditional retirement savings. However, such investments can be a huge red flap for the IRS, and you need to plan carefully as to how and when you let go of these investments, if they are part of your retirement plan.

For one thing, value can fluctuate wildly over time. There is no guarantee that your precious items will find a buyer ten or twenty years from now. Art may go out of style. Collectables that are all the rage today might be out of fashion as time goes on. They might also become super rare. The problem from a retirement standpoint is, if you don’t turn them into cash when you feel they have reached their height of popularity, you might want to consider your ownership a hobby, and not an investment. And, as for value, remember that every dollar redeemed from these items is a taxable event. Selling them, even at a profit, will still cost you up to 40% in value for taxes, and if you wait until retirement, that might be a painful transaction to make.


Tax planning for retirement is a far-reaching analysis of your assets, your savings, and your spending. With your goals fully understood, your tax planning professional can devise strategies to maximize the value of your assets, minimize your tax obligations, and give you a solid roadmap for reaching a financially sound retirement.

We invite your thoughts and questions. If you need to speak with someone about your tax situation and your retirement goals, feel free to call or email us today.