Managing your tax bill through tax diversification may provide more money in retirement, part four of five taken from the full episode of Right on the Money On The Basics of Annuities.

Managing your tax bill through tax diversification may provide more money in retirement, part four of five taken from the full episode of Right on the Money On The Basics of Annuities.

The typical view of retirement money management address the correlated tax impact on assets during retirement distribution. But with a little bit of planning with your tax consultant, you may be able to reduce your tax bill, leaving money in your pockets during retirement when you need it most. There are basically three areas of taxation to know: what’s taxable, what’s tax-deferred and what’s tax-free.

You can start taking qualified retirement plan distributions at 59½ and your Social Security benefits at age 62. But should you? With today average life expectancy for men at 86.6 years and women at 88.8,1 it’s time to reassess the retirement timeline.

If you’re a baby boomer, you should revise your retirement date to your 70th birthday and maximize your Social Security benefits. Six months later, you’ll be faced with mandatory required minimum distributions (RMDs) from your qualified plans, but you can delay some portion of your RMDs as far out as age 85.

But if you decide to retire before then and you need the money, you may want to investigate taking a reverse mortgage, a home equity loan or borrowing from your cash-value life insurance.2 The loans are generally tax-free and can be a retirement resource until age 70. You can repay those loans when and if your income increases later in retirement.

If you don’t need the money because you’re working until age 70, consider non-qualified, tax-deferred annuities that permit your earnings to accumulate without taxation until you access the annuity.3 Remember, your original annuity deposit can also be accessed as tax-free return of basis. Watch the interview with Certified Annuity Specialist Liz Cornell [url link].

These are just some of the basics of tax diversification you and your advisor can use to build a retirement distribution plan that can help you optimize your financial resources and keep more of your money.

1 Changes in life expectancy for 65 year olds in the U.S. 2010 vs. 2014 Wall Street Journal 10/28/2014.
2 Policy loans from a non-modified endowment life insurance contract are tax-free, provided the policy is kept in force for the life of the policy insured.

3 Annuities are not insured by the FDIC or any government agency. So it’s important to have your financial advisor review the balance sheet and ratings of the insurance company before you purchase an annuity.

Syndicated financial columnist and talk show Steve Savant interviews Liz Cornell, Certified Annuity Specialist on The Basics of Annuities.