5 Questions to Ask Before Early Retirement

In this article, we discuss the 5 questions to ask before early retirement. If you want to check out our analysis of early-retirement dynamics, go directly to the 12 Questions to Ask Before Early Retirement.

5. How Will I Deal with Taxes After Retirement?

Taxes are there even if you’ve decided to retire earlier. Some of your post-retirement income from social security benefits or pension would be tax deductible, but the problem starts with the estimation of taxes rising over time. 

With limited savings and no steady source of income, you’d probably want to avoid paying higher taxes over your savings.

Conversion of traditional Individual Retirement Account (IRA) to Roth IRA solves this problem. When you convert, you pay a significant tax bill upfront on your savings only once, but then your savings grow tax-free and there’s no tax deduction later whatsoever. 

However, the tax you pay upfront is significant and taxes do not necessarily have to rise in the future. In fact, taxes may even reduce over time. So it boils down to your educated guess whether taxes would rise or fall in the future and make your decision accordingly.