The Myth of a Lower Tax Bracket in Retirement

If you let this myth guide you in any way in your financial planning, you are setting yourself up for failure. Unless you can predict the future, you have no idea how much money you will need in retirement, or how much you will be paying taxes in Retirement. 

Some people believe their taxes will be lower in Retirement because that’s what the financial industry has been telling us. Perhaps, for a short time, retirees may be in a lower tax bracket. But the reality is most people end up in the same tax bracket or a higher tax bracket in Retirement. 

Once Required Minimum Distributions kick in at age 72, you can quickly move into a higher tax bracket than you were in during your working years. You may also have an increase in taxes due to Medicare surcharge tax and other taxes the government decides to make you pay between now, then, and after you retire.

We have no idea what the economy, taxes, the stock market, or healthcare costs will be when we retire or how they will change throughout our Retirement. 

We are taught to base our Retirement on an assumption that has no factual base. Why are we being led to defer all our taxes until Retirement?  It becomes a trap. Once we are in Retirement, there are very few ways to reduce taxes. How do you plan on making up that money in Retirement? Remember, Retirement can easily last 20 years. 

Why are you making predictions on something you have no control over? Why are you trusting the government with taxes in your Retirement? 


Here is what we know: the current tax law is in effect until the end of 2025. Many people believe the difference in rates between the old and the new laws is just a few percentage points. This is another false assumption. 

The difference between the current rates and the future rates on January 1, 2026, is between 9.7% and 25%. In other words, there is an opportunity right now through proactive tax planning to reduce your taxes between 9.7% and 25%.

However, looking to the future, the tax landscape is likely to change. Our government continues to spend frivolously. At some point, our country must pay for that debt. Taxes and inflation are the most powerful tools our government can use to decrease their debt. 

Most people don’t realize how high taxes can go. Since 1913, we have only had a lower top marginal tax rate 16 years. In 1944 and 1945, the maximum marginal rate was 94%. It was 91% from 1954 to 1963, and it didn’t drop below 70% until 1981. To add to that, the tax bracket thresholds have changed dramatically

With the government’s current spending problems, how high do you think tax rates will go? 


If you are unwilling to pay taxes in the future, you can pay your taxes now. A Roth IRA is a government-controlled retirement plan that is tax-exempt. But the GOVERNMENT restricts the amount you can contribute to a Roth, so you probably cannot build up a large enough account for a comfortable tax-free retirement. Luckily, there are some ways to supplement a Roth. Congress has also been flirting with the idea of changing the contributions rules to these accounts. 

A high cash value dividend-paying whole life insurance policy may be the best way to accumulate wealth and not pay taxes in Retirement. There are different choices as to how you design a policy for your retirement needs, but they all share the same features needed for a safer retirement; liquidity, tax-free cash-flow, and consistency in value.

For more information on Life Insurance Retirement Plans, please contact us.