The Shocking Truth About Retirement: Debunking the 4th Biggest Myths

Retirement is a major milestone in our lives, typically seen as a time for leisure and enjoyment after years of hard work. Yet the journey to retirement is often clouded by myths and misconceptions that can cause unnecessary stress. One major myth is the belief that your tax liability will be lower in retirement years because your income will be lower. Well that's like saying why don't we just cut our lifestyle back now so that we can prepare to live BELOW our means in our 60's, 70's and 80's! Who's on board for this? Nobody! When it comes to your retirement your rate of return should not be your concern its the the amount of money you saved and how long will that money will last.

Myth #1 You'll be in a lower tax bracket

This is the most common belief because people think since they are not pulling their full salary, they will be pulling from a pension that is typically taxed less than their salary. However the idea of being in a lower tax bracket assumes that you're not pulling money from other places. If you do pull money from other sources ie real estate income, social security, TSP's- the vast majority of which is taxable-you will be right back in the same tax bracket as you were before retirement.

Myth #2 You should move to a tax-friendly state when you retire

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do NOT tax anyone's income including pensions. New Hampshire only taxes capital gains and dividend income. Although these states have no income tax they typically have a higher sales tax and property tax, So beware!

Myth #3 My Social Security benefits won't be taxed

Unfortunately, its not just your retirement account withdrawals that are taxed- some of your benefits may be taxed as well. At the federal level roughly 85% of your social security benefit is taxable.

Myth #4 I only have to pay taxes on the money I put in the TSP

Most people are aware that there are taxes due on the back end of their traditional IRAs and TSPs however many don't understand they just don't owe taxes on the principle, they also owe tax on the ALL the growth as well.

Don't be caught off guard in retirement

My best advice is sit down with a professional like myself to help you understand what your FIN (financial independence) number is and how to calculate your retirement tax liability BEFORE your withdrawals begin.