If you set aside portions of your earnings in a 401(k) or IRA, then you will have to pay taxes upon distribution. Additionally, if your securities have appreciated, you will owe taxes on them as well. At the time of contribution, you placed tax-deferred dollars into these assets, so there can be a tax shock after previously not considering the taxable savings. You can, however, maximize after-tax income, further defusing the tax bomb. There is not one easy plan that allows a retiree to maximize their after-tax income, but there are efficient solutions to converting your savings into income. For example, fixed annuities often receive larger tax cuts while stock dividends are assessed at lower tax rates. Additionally, the equity in your home most likely receives the best tax treatment, making a reverse mortgage a viable option.
See Jerry Golden, The Tax Bomb in Your Retirement Plans, Market Watch, October 18, 2016.
