Did you know that taxes on retirement income includes your 401k and IRA withdrawals?
Taxes on income includes income tax on withdrawals from retirement accounts, taxes on Social Security payments, and taxes on required minimum distributions at age 70 1/2.
Let's look more closely.
The good news is that, generally, taxes in retirement are lower than pre-retirement taxes because total taxable income for retirees is lower. (Don't forget I said "generally.")
This means retirement income falls into a lower tax bracket than income during working years.
There is a built-in exclusion on Social Security benefits, as well but, as other income, for example a retirement withdrawal, is added the tax rate increases.
The higher your total income, the more chance there is of being taxed for Social Security benefits. See these pages for details on Social Security benefits.
Income withdrawn from retirement savings accounts such as pensions, 401(k) and traditional IRA accounts is taxed as income if these funds were not taxed when they were contributed (most cases).
There is a mandatory 20% withholding on 401(k) withdrawals at the time of the withdrawal. This rule does not apply to IRA withdrawals, and withholding amounts can be adjusted for those withdrawals.
The total withdrawals and taxes paid are reported to the taxpayer on form 1099-R each January, (instead of the W-2 for employees) and will be used to file federal income tax returns. If the withholdings were more than the tax due, they are refunded just as they were while employed with W-2s.
I can tell you from my own experience that almost all of that 20% was refunded to us. (Our first taxable year of being retired was 2012.) But our situation may be different from yours, of course.
I'm just making the point that our taxes are much lower than while we were working, as yours may be, too.
When we reach age 70 1/2, the IRS requires that we withdraw a certain amount from all tax-advantaged retirement accounts, such as IRAs and 401(k)s.
The minimum amount is derived using life expectancy. The objective is to collect the taxes on retirement income that has never been taxed before we outlive it (if we are that fortunate.)
See this page on required minimum distributions
Social Security benefits alone are generally not taxable (source: irs.gov) unless other taxable income exceeds the tax threshold.
Rather than a tax, if your income exceeds a certain amount and you are below the full retirement age, your benefits will be reduced.
For 2014, see this document from SSA.gov.
Many state governments provide for tax limits, exemptions, or deferments on property taxes for their low income elderly residents.
These are sometimes referred to as homestead tax exemptions.
Some states consider net worth as one criteria for eligibility, for example, if net worth is below $200,000.
To find out if your state offers it and to apply for this exemption, contact your county property tax office for more information.