Supposedly, retirement demands less income than you need in your working life. After all, once you've retired, you no longer have to pay Social Security or Medicare taxes (known as FICA taxes); you no longer divert money to 401(k)s or IRAs; and retirement income is often taxed at lower rates.

How much retirement income do you need in order to produce that same amount of after-tax spending power? That depends on where the income comes from. Here are some main sources of retirement income, and their tax consequences:

  • Social Security: Depending on the amount of taxable income from other sources, anywhere between 0% and 85% of Social Security benefits can be taxed.

  • Tax-deferred retirement accounts: Distributions from traditional IRAs, 401(k)s, 403(b)s, 457s, and thrift savings plans are taxed as ordinary income, at rates ranging from 10% to 35%.

  • Investment income: Short-term capital gains (from investments held for one year or less) are taxed as ordinary income; long-term capital gains are taxed at either 0% or 15%. Dividends from most stocks held for 60 days are taxed at 0% or 15%.

  • Roth retirement accounts: Qualified distributions from Roth IRAs, Roth 401(k)s, and Roth 403(b)s are tax-free.

We at Roth + Company are not accountants and do not provide accounting advice. We always recommend that you talk to a licensed accountant for your individual tax advice.