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Taxes and Retirement


"The only thing you should ever re-tire is your car." - Irving P. Siminoff, 2003


Let's say you (reluctantly) accept that while you're working, the government can take some of your taxes so that you can get necessary stuff in exchange (see: a country to live in, roads to drive on, and a military to keep you safe).

That's all fine and good while you're bringing in an income, but what happens when you retire? When you're not earning an income, the government can't take more of your money…can it?

Ha.

You're underestimating the IRS.

The government has a lot to gain by taxing you as early as possible and by continuing to tax you as long as possible. Even when you're not earning any income and desperately need the cash for Botox and denture cream, the government still wants its share of the dough.

When you retire, here are some of the taxes you might still be paying:

Income Taxes

You might not think you're getting any income in retirement, but the government sure doesn't see it that way. Do you have a retirement account such as a 401(k) or IRA? You may not have been paying taxes on the money you were putting away for "someday," but someday is here, and the IRS is right there, ready to collect. Retirement accounts usually put off taxes, but once you start taking money out, that cash is taxed.

And that's assuming that you can get away from work entirely. If you weren't earning much during your working years or weren't able to save up enough, you may need to keep working. Bills need to be paid, whether you're 28 or 82, and if you don't have the savings and investments, you might be working part-time to make ends meet.

You might even be setting up your own business just to have a nice hobby that doesn't involve knitting (you hate stereotypes and you can't knit anyway). You're on your way to becoming the best-paid Granny CEO this country has ever seen.

If you're still earning in any way, you're paying taxes.

Sales Taxes

Whether you're 6 or 96, if you're buying something, you're paying sales tax. And retiring ain't cheap. You have to pay for clothes, a place to live, and the occasional indulgence (like a really nice razor and luxury shaving foam to take care of the hair on your knuckles).

You're going to get taxed on all of that.

More bad news: the price of everything has been going up in the past twenty years while you were busy earning an income. So now you're paying more taxes on those razors and shaving cream because they're more expensive than they've ever been.

Gains Taxes

Let's say you made the right moves and invested in retirement accounts as well as private investments like index funds, stocks, or bonds. You did that so that you could afford to read, golf, travel, or raise falcons in your retirement (or all those things, if you're feeling ambitious). Now that it's time to dip into those investments, you can be sure that the government is going to tax you.

If you sell your stocks or withdraw your investments, you're probably going to pay gains taxes on the profits you've made. If you get dividends, you may need to pay income taxes on those.

Why Should You Care?

You may not need to pay income taxes yet, so why do you need to worry about income taxes on your retirement? After all, Captain Picard never talked about taxes on Star Trek, and if that's the way of the future, maybe there won't be any income taxes by the time you retire?

Not so fast, bucko.

We never saw Captain Picard at tax time. For all we know, Worf took care of that stuff (by the way, this is something you may want to bring up at a science fiction convention if you're bored). The odds of taxes being abolished is really, really tiny (about as tiny as Ryan Gosling suddenly calling you up to chat). You're going to have to pay them when you're old and grey, which means you'd better start saving.

Even before all of that happens, your own parents will retire and may need help paying their taxes (and everything else). You may be facing the subject sooner than you wanted. 

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