LEO - Tax After Retirement

May 26, 2022

To our advisors, it’s a bit like living groundhog day (the movie)… Every spring we hear a few comments about owing big tax money after a Career Law Enforcement Professional has retired from police work.

While we as advisors make mention of it over and over, with so much happening at once creating noise during retirement, it seems as though it may fall upon deaf ears or simply becomes information that is forgotten about. So here we are…


Yes, retirement can be painfully taxing, so here’s the deal.  We sometimes find households with multiple W-2 or independent contractor (10-99) income sources; for example, a W-2 from employment for each spouse, a government pension, a side job… it all adds up to greater levels of household taxable income and becoming part of how your “effective tax rate” is calculated.

While each of the independent income sources may have withheld taxes for each portion of income on its own, the collective total has moved you up in the tax-brackets, increasing your effective tax rate. To the point, many of us will face the surprise that we’ve under-withheld the appropriate amount of taxes. When this occurs, a big tax bill can be the result.

How to avoid this surprise?  First, we suggest advance COMMUNICATION with your qualified tax professional the year in which you retire and stay in contact with them proactively for the few years that follow, until income settles a bit. Second, ask your tax pro if you need to increase withholdings on any of your household income sources; the sooner you make any necessary change, the better. It’s that easy!