This Common Retiree Regret Could Shrink Your Income

Preparing for retirement is a high priority for a lot of people, with Gallup data showing that 59% of Americans have at least some kind of retirement savings plan in place. But did you know that the same percentage of retirees also find themselves ill prepared to pay taxes after they retire? As many people focus on growing their nest eggs, they may fail to account for more than just everyday living expenses in their post-work years. A 2025 survey performed by the Nationwide Retirement Institute, in conjunction with The Harris Poll, found that 59% of retirees wish they would have prepared themselves better for paying taxes during retirement, while 51% say they did not consider how tax rates would affect their retirement income.

While survey results are just a few of several common regrets people experience in retirement, there are ways to avoid getting caught off guard by this particular expense. Taxes are commonly equated with employment earnings, but many sources of retirement income are still income in the eyes of the IRS, and certain assets continue to be taxed regardless of the owner's age. Whether you're newly retired or saving up for it, it's crucial to understand what taxes may apply to your finances on both state and federal levels to avoid being blindsided in your golden years.

As long as you don't have a job after you retire, you won't have to pay typical payroll taxes. Instead, it's the non-employment taxes that can come as a surprise and eat away at your hard-earned retirement savings. Different types of retirement accounts come with their own rules, which can add to the confusion and unwelcome tax surprises later on. For example, you'll owe taxes once you start withdrawals from your 401(k) as ordinary taxable income, since this money was not taxed when it first went into your account. And while some states exempt Social Security income from taxes, you may still owe the IRS taxes on a portion of your benefits if your combined income is over $25,000 as a single filer or $32,000 as a married couple.  

Beyond that, you'll still have to budget for routine taxes you may have already been paying for years ahead of retirement. Although some states offer property tax relief or exemption programs for seniors, it's a good rule of thumb to assume you'll pay property taxes in full while planning for retirement. Likewise, many retailers offer senior discounts, but you'll still have to pay sales tax on everyday expenses.

If you're newly retired, you might want to work with a financial advisor to learn more about the specific taxes you may be liable to pay in retirement and how you can save the most possible while avoiding surprises. If you make any big changes to your lifestyle — such as moving out of state — you'll also want to consider how doing so could change your tax burdens. With a little research, you could avoid some common state tax traps for retirees and potentially find new ways you can use your new home's local tax laws to your advantage.

On the other hand, if you're not retired just yet, taking more proactive actions now is prudent if you want to minimize the impact of taxes on your future. First and foremost, try to avoid early withdrawals from your retirement accounts — if you take anything out of a 401(k) or IRA before you reach the age of 59 ½, the IRS views that as an early distribution and will subject you to an additional 10% tax. On that note, you may also want to consider rolling over your 401(k) to a Roth IRA for the tax advantages, as Roth earnings are tax-free providing they're not withdrawn early. Unlike 401(k) plans, which you may wind up regretting thanks to the taxes you'll pay on future withdrawals, paying taxes on contributions to your Roth account now leaves less room for surprise costs later on.