Retirement concerns

There is a lot of advice about how to save for retirement. But what about when you start to withdraw your savings as retirement income? There are several risks that can put a dent in your retirement portfolio, but that’s where wise retirement planning comes into play.


Jump to learn about these retirement income risks:

Or jump to learn about these types of retirement income taxes:


What factors could hurt my retirement income?

There are three risks associated with common economic factors that could possibly put a dent in your retirement income:

  • Stock market volatility
  • Low interest rates
  • Inflation

All three can pose serious threats to your income stream, including your Social Security income. Consider these risks before withdrawing your savings as retirement income and use informed retirement planning to alleviate your concerns.

Stock market fluctuations

Though the stock market historically offers good returns over the long term, as you near retirement, you may want to avoid the risk of market downturns. While it may be tempting to turn completely away from equities to preserve assets, keep in mind that retirement can last for decades and you may still need to capture growth. To help protect against volatility, you may want to consider a lower-risk, diversified portfolio that still allows for growth. If you have the foresight to address your retirement concerns now, your retirement planning will pay off in the future.

Low interest rates

As you near retirement, the traditional approach to allocation has been to add more bonds into your portfolio to help reduce stock market risk. However, in today’s low-rate environment, bonds might not generate sufficient income on their own. You might consider including equities and real assets, like commodities or real estate, as part of your retirement portfolio to help generate additional income – and put some of your retirement concerns at ease.


The cost of retirement is likely to increase over time, which means that your lump-sum savings might not stretch as far as you thought. To protect against inflation as a component of your retirement planning, you might consider investing a portion of your savings in equities and real assets, which are designed to help hedge against this risk. Or, if purchasing an annuity, you might opt for one that offers cost-of-living adjusted payments. Consider these strategies to counteract the risk of inflation.

How is retirement income taxed?

Market risks aside, taxes can also take a chunk of your retirement income, including your Social Security income. That’s why it’s important to consider tax-saving strategies, like relocating to a state with no or low income tax or converting savings to plans that offer tax-free withdrawals, like Roth IRAs. Key retirement taxes to consider ahead of time include:

  • Federal taxes on retirement account withdrawals
  • State income taxes on retirement account withdrawals
  • Taxation of pension benefits and retirement annuities
  • Interest, dividends and gains from taxable accounts

Federal taxes on retirement
account withdrawals

If you have a traditional 401(k) or traditional individual retirement account (IRA), the IRS generally requires that you begin to take annual required minimum distributions (RMDs) when you turn 70 ½ years old. Withdrawals are taxed as ordinary income. The larger your savings in the account, the larger the withdrawal requirements, which could push you into a higher tax bracket than expected. Preparing for these taxes should be an element of your retirement planning.

State income taxes on retirement account withdrawals

Only a handful of states don’t have state income tax. Unless you live in one of these states, you'll owe state taxes on at least a portion of your income, though some states exempt Social Security benefits and pension payouts. To find out what state taxes you might owe on your retirement income, explore our retirement tool as part of your retirement planning.

Taxation of pension benefits and retirement annuities

Depending on how your employer funded your pension, you may owe taxes on your payouts. While most pensions are taxable, some types of military pensions or disability pensions may be partially or entirely tax-free.

In addition, Social Security payments are subject to federal taxes. Based on your pension and provisional income, your benefits (including your Social Security benefits) could be taxable up to the following amounts:


Up to 50% taxable

Up to 85% taxable


$25,000 to $34,000



$32,000 to $44,000



Benefits you receive from an annuity, may also be taxable. Payments from a qualified annuity are fully taxable as income because taxes have not yet been paid on that money.

Interest, dividends and gains from taxable accounts

Payouts from regular accounts, such as dividends or proceeds from the sale of an investment (capital gains), are generally subject to federal tax and potentially state tax, depending on where you live. Your retirement planning should account for the ebb and flow of capital contained in your retirement accounts.

How can I address the top retirement tax concerns? 

To tackle issues around prominent retirement tax concerns:

  • If you’re concerned about the withdrawals from your traditional 401(k) and IRA being taxed as ordinary income and pushing you into a higher tax bracket, you can convert these retirement accounts into plans like Roth IRAs that offer tax-free withdrawals.
  • Be familiar with your state income tax exemptions. Some states require little or no state income tax, while others exempt Social Security benefits and pension payouts.
  • Research if you live in a state where your employer’s pension or annuity benefits are taxed. In some states, you might be exempt from those taxes.
  • If you file a joint tax return with your spouse and your income exceeds $34,000 or $44,000, you could owe federal income tax on up to 85% of your Social Security benefits. The only way to avoid this tax is if you can manage to keep your income below the specified limits. If not, budget for this tax penalty during your retirement years.
  • Dividends or proceeds from the sale of an investment (capital gains) typically are subject to federal tax and potentially state tax, depending on your state of residence. Unfortunately, the only way to avoid paying capital gains taxes is if you receive neither of these sources of income. Otherwise, factor these taxes into your retirement planning budget.