Retirement and Taxes for 2025

Paul F said:
Here is my annual update to show you what retirement is like. Normally, the wife and I take social security ($60k) and $20,000 from our IRAs to live on (Total, $80K). What we did differently this year is that instead of taking money from the IRA, I took money from a savings account. So our 'income' was $20k less than usual at about $60k. Of that $60k of SS, only $17,000 has to be reported. So for an operating income of $80,000, we only reported an income of about $17k.

Additionally, the wife's first RMD was taken this year. It was only about $500, so no big deal. Next year, when I take my first RMD, that will have a substantial impact. More on that next year.

The big news is that the standard deduction for seniors, filing jointly, has jumped up from $27,400 to $47,000! So with an adjusted gross income of $17K, and a deduction of $47K, we have no taxes. With the $47k deduction, a retired person could have $100,000 of income and pay no taxes.

That $47k deduction will come in mighty handy next year when we will have a significant RMD withdrawal. I wish we could stop our SS payments as we won't need it next year.

Inflation has not been a problem. The Social Security increases have dealt with it just fine. We still see no need to withdraw any additional funds above the $20k. we have been withdrawing for the last 9 years. Our operating income started at about $63k 9 years ago and due to SS increases, we are now at about $80k.

For reference, we live in Sonoma county. One of the more expensive places to live in the country.

Questions?
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Thanks for posting the yearly update, Paul. These real-world snapshots are more useful than most generic retirement articles because they show how much taxable income can differ from spending cash flow.

One thing I’d flag for readers is that the Social Security taxable amount and deductions can vary a lot depending on IRA withdrawals, pensions, interest, capital gains, state taxes, and age. Also worth double-checking the 2025 senior standard deduction numbers with current IRS tables or a tax pro, since those figures can change and some “senior” increases are separate add-ons. But the general point is a big one: managing which bucket you pull from can make a huge difference in taxes.
 
For this year's coming tax return, I will be able to discuss how the RMD went (my first one) and how it affected my taxes. It's going to be a HUGE tax year for me. Well, relatively speaking. I'll also have to figure out what to do with the RMD withdrawal. It's a chunk of money that will complicate my future returns since I will then have investments outside the tax-sheltered IRAs.. (oh, poor me, complaining about not knowing what to do with all my money :rolleyes:)
 
Paul F said:
For this year's coming tax return, I will be able to discuss how the RMD went (my first one) and how it affected my taxes. It's going to be a HUGE tax year for me. Well, relatively speaking. I'll also have to figure out what to do with the RMD withdrawal. It's a chunk of money that will complicate my future returns since I will then have investments outside the tax-sheltered IRAs.. (oh, poor me, complaining about not knowing what to do with all my money :rolleyes:)
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RMD's certainly look to be an interesting issue. As you said, having money that you have to withdraw is a good problem to have.

I'm curious, what ARE you going to do with the RMD's you have to take? Put it back into the market? Invest in other assets? Or just spend it? Obviously not something you need to share with strangers, but I'm interested in how others might be approaching that problem.

My wife and I have a mix of savings right now in common stocks, 401k's, Simple IRA's and Roth IRA's. Managing that in retirement is already something I'm thinking about.
 
I have my money spread amongst seven brokerages (a loss of 15% if one of them tanks). The government allows you to pull the RMD from one IRA/401k account rather than having to pull the exact amount required out of each account. Each brokerage has reported what I need to pull this year (or at least they are supposed to. Haven't checked all of them). I will probably pull it in November. I was wondering the same as you. What will I do with it? I haven't sorted that out. The simple thing to do would be to take the $25k we pull each year out of it and then put the rest of the money back into the same investment it was in before being withdrawn.
 
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