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Three Financial Planning Tips for Seniors

November 03, 2021

Many people think that once we’re settled into retirement, the time for financial planning has passed.  In reality though, it’s never too late to tweak our financial plans.  Here are three things that seniors may want to consider to help ensure their retirement income plans work smoothly and tax-efficiently throughout their retirement.

Tip #1: Keep an eye on taxable income

No one wants to pay more in taxes than they need to.  Sending big checks to the IRS in retirement can put a strain on your retirement savings.  One way to keep your tax bill low is to keep track of your taxable income during the year and be aware when you’re getting ready to bump from one tax bracket to the next.

For example, let’s say you’re a 65-year-old single person.  It’s November, and your taxable income for the year is right around $40,000 (total income of $54,250 less your standard deduction of $14,250).  This would put you right at the top of the 12% bracket.  Once you hit $40,525 in taxable income, you’ll bump into the 22% bracket.  What if you need more money to get you through the rest of the year?  Rather than pulling more money from a tax-deferred retirement account and sending 22% of it to the IRS, you may want to tap into a Roth account, a life insurance policy with cash value, or maybe a savings account.  These distributions typically won’t be taxable and won’t add to your tax bill for the year.  Even taking a long-term capital gain at 15% might be a better option.

Tip #2: Take advantage of married tax filer status

Married couples often have an opportunity to pay a lower overall tax rate on their retirement income.  This is because married people benefit from a much larger standard deduction and have much wider tax brackets than single people.  Here’s an example of how you can take advantage of this opportunity.

Chris and Alex are a married couple, both age 72.  Their retirement income consists of $30,000 in taxable Social Security income and a $50,000 required minimum distribution (RMD) from their retirement accounts.  After their standard deduction of $27,800, Chris and Alex have taxable income of $52,200 ($80,000 minus $27,800).  As married filers, however, Chris and Alex would not hit the 22% bracket until their taxable income hit $81,050.  Even if they don’t need the extra money, Chris and Alex might want to pull some additional money out of their tax-deferred retirement account, or maybe do a Roth conversion.  Why?  Because they are in a relatively low 12% bracket.

Consider what would happen if Chris passed away.  In the following year, Alex would receive less Social Security as a survivor (we’ll assume $20,000 taxable).  If Alex inherits Chris’s retirement assets, however, her RMD would likely stay about the same because they were the same age.  If it did, Alex’s total income would be $70,000.  But Alex’s standard deduction as a single filer would only be $14,250, leaving her with a taxable income of $55,750.  As a single filer, she would have over $15,000 of income exposed to the 22% bracket.  Alex would pay more taxes on less income.

If Chris and Alex did Roth conversions to fill out the 12% bracket, they would be reducing the balance in their tax-deferred accounts and potentially reducing future RMDs for the survivor.  They would also be increasing their tax-free savings.  This would also provide the survivor with a tax-free source of income if needed.  Finally, Roth accounts pass tax-free to beneficiaries, such as their adult children.

Tip #3: Be tax-smart about beneficiaries

Most people’s primary concern in retirement is making sure they have enough income to live comfortably.  But you don’t need to be wealthy to start thinking about possibly leaving something to your family.  When you’re filling out beneficiary designations on retirement accounts, don’t forget to consider the tax situation of those beneficiaries.  Just a little planning can potentially reduce their tax bill when they inherit assets.

In the last section, we saw what can happen to a surviving spouse who inherits significant retirement assets.  This is sometimes referred to as the “widow’s penalty.”  One way to address this is to carefully consider how much of your retirement savings your spouse would need to maintain their standard of living.  You could also leave your spouse other, more potentially tax-efficient assets (e.g. a Roth account, non-qualified brokerage account, or savings account).  Leaving fewer tax-deferred assets to your spouse means smaller required minimum distributions, and possibly a lower annual tax bill.

But this raises another question- if I don’t leave retirement assets to my spouse, who will I leave them to?  We need to think this through as well.  Very often, my adult children will be next in line.  Remember that as non-spouses, any retirement assets they inherit will have to be distributed by the end of the tenth year following my death.  The beneficiary will have to pay income taxes on those distributions.

Accordingly, the tax status of my beneficiaries is very important.  If my daughter is a highly paid corporate executive, she may already be in a high tax bracket.  If she inherits my tax-deferred retirement accounts, she will likely pay a high effective tax rate as she takes distributions.  In that case, it might make more sense to leave her my more tax-efficient assets.  In fact, in this situation, I might want to be even more aggressive with Roth conversions, especially if I’m in a significantly lower bracket than her.  Maybe I can leave my remaining tax-deferred retirement assets to my starving artist son, who is in a very low tax bracket.

You’re never too old to plan and you’re never too old to save your loved ones some money on taxes. Hopefully, these simple tips will help some of your older clients take more control over their retirement savings and feel even better about their financial future.  For more information, visit


  • This information is general in nature and is not intended to be tax, legal or other professional advice. Federal income tax laws are complex and subject to change. The information presented here is based on current interpretations of the law and is not guaranteed.

    Nationwide and its representatives do not give legal or tax advice. An attorney or tax advisor should be consulted for answers to specific questions.