Calculating post-retirement expenses is crucial to retirement planning. For instance, predicting how much you will pay in taxes can be difficult, because your tax bill depends on your individual circumstances. Most retirees spend less on taxes than they did when they were working, largely because their incomes have gone down. But there are other reasons you may have a lighter tax burden after retirement.
New York State Taxes
As a NYSLRS retiree, your pension will not be subject to New York State income tax. New York doesn’t tax Social Security benefits, either.
You may also get a tax break on any distributions from retirement savings, such as deferred compensation, and benefits from a private-sector pension. Find out more on the Department of Taxation and Finance website.
Be aware that you could lose these tax breaks if you move out of New York. Many states tax pensions, and some tax Social Security. For information on tax laws in other states, visit the website of the Retired Public Employees Association.
Unfortunately, most of your retirement income will be subject to federal taxes, but there are some bright spots here.
Your Social Security benefits are likely to be taxed, but at most, you’ll only pay taxes on a portion of your benefits. You can find information about it on the Social Security Administration website. (If you’re already retired, use the Social Security Benefits Worksheet in the Form 1040 instructions to see if any of your benefits are taxable.)
Throughout your working years, you’ve paid payroll taxes for Social Security and Medicare. For most workers, that’s 6.2 percent (Social Security) and 1.45 percent (Medicare) out of every paycheck. But Social Security and Medicare taxes are only withheld from earned income, such as wages. Pensions, Social Security benefits and retirement savings distributions are exempt. Of course, if you get a paying job after retirement, then Social Security and Medicare taxes will be deducted from that pay check.
To better understand how your retirement income will be taxed, it may be helpful to speak with a tax adviser.