Smart Ways to Pay Less and Keep More in Retirement
Retirement is often seen as the finish line when it comes to working, but when it comes to taxes, it’s just the beginning of a whole new playbook. The good news? If you’re over 65, you qualify for a long list of tax perks that younger taxpayers can only dream of.
From higher standard deductions to Social Security exemptions, retirement opens the door to unique opportunities to legally lower your tax bill—but only if you know where to look. In this post, we’ll explore the most powerful tax benefits available to retirees and how you can use them to your advantage.
1. Higher Standard Deduction for Seniors
Let’s start with one of the simplest (but most overlooked) tax perks: the higher standard deduction for people age 65 and older.
Currently, the standard deduction is:
- $13,850 for single filers
- $27,700 for married couples filing jointly
But if you’re 65 or older, you can add an extra:
- $1,950 (if single or head of household)
- $1,550 per person (if married filing jointly and both spouses are 65+)
That means a retired married couple both over 65 could have a standard deduction of $30,800—before paying any federal income taxes at all. That’s a big deal, especially if you’re living on a modest retirement income.
2. Social Security May Be (Partially) Tax-Free
Not all Social Security income is taxed. Whether you pay tax on it depends on your provisional income—a formula that includes half your Social Security benefits plus all other taxable income (like pensions, wages, dividends, and IRA withdrawals).
- If your provisional income is below $25,000 (single) or $32,000 (married filing jointly), your Social Security benefits are completely tax-free.
- If your provisional income is between $25,000 and $34,000 (single) or $32,000 and $44,000 (married), you may pay tax on up to 50% of your benefits.
- Above those levels, up to 85% of your benefits may be taxed—but never 100%.
Strategic planning—such as drawing from Roth IRAs or spreading out IRA withdrawals—can help you stay under those limits and reduce or eliminate taxes on your Social Security.
3. No More Payroll Taxes
One hidden benefit of retirement is you stop paying FICA payroll taxes (Social Security and Medicare) when you stop working.
If you’re drawing income from pensions, annuities, dividends, or withdrawals from retirement accounts, you’re no longer having 7.65% deducted off the top like when you had a paycheck. That means you get to keep more of your money.
If you do work part-time in retirement, payroll taxes still apply to earned income—but not to passive or retirement income.
4. Required Minimum Distributions (RMDs) – With a Workaround
Once you hit age 73, the IRS requires you to begin taking minimum distributions from traditional IRAs and 401(k)s. These withdrawals are fully taxable and can bump you into a higher tax bracket.
But here’s the loophole: If you don’t need the money, you can donate your RMD directly to charity through a Qualified Charitable Distribution (QCD)—and it won’t count as taxable income.
You can donate up to $100,000 per year per person through a QCD if you’re over 70½, and it satisfies your RMD. That’s a win-win for your taxes and your favorite causes.
5. Property Tax Breaks for Seniors
Many states and counties offer property tax exemptions, deferrals, or freezes for older homeowners. These programs can save hundreds—or even thousands—of dollars each year.
While rules vary, common features include:
- Age 65+ eligibility
- Income limits (some are generous)
- Exemptions on a portion of home value
- Property tax freezes that lock in your rate, even if property values rise
Check with your county assessor’s office to see what local property tax relief programs are available. This is one of the most underused benefits among seniors.
6. No Early Withdrawal Penalties
Once you reach age 59½, you can withdraw money from retirement accounts like IRAs and 401(k)s without paying the 10% early withdrawal penalty. That opens the door to more flexible income strategies in your 60s—even before you claim Social Security.
If you’re between 60 and 70, consider:
- Withdrawing small amounts strategically to fill up lower tax brackets
- Converting part of your IRA to a Roth IRA (more on that below)
- Reducing your future RMDs before they kick in at 73
This decade is often called the “golden window” for retirement tax planning.
7. Roth Conversions = Future Tax Freedom
If you have money in a traditional IRA or 401(k), you can convert it to a Roth IRA at any age. You’ll pay taxes on the converted amount now, but then that money grows tax-free forever—and withdrawals are tax-free in retirement.
For retirees in a low tax bracket, this can be a powerful way to:
- Reduce future RMDs
- Lower taxes on Social Security
- Create a tax-free inheritance for heirs
Just be careful not to convert too much in one year and push yourself into a higher tax bracket.
8. Saver’s Credit – Yes, Even for Seniors
If you’re still working part-time or your spouse is, and your income is modest, you may qualify for the Saver’s Credit—a tax credit for contributing to a retirement account.
You may be eligible if your income is:
- Below $36,500 (single)
- Below $73,000 (married)
The credit is worth up to $1,000 per person (or $2,000 per couple), depending on your income. It’s a real credit, not just a deduction—meaning it directly reduces your tax bill dollar for dollar.
9. Medical Expense Deduction
As we age, healthcare costs often rise. The IRS allows you to deduct qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI).
These include:
- Medicare premiums (Parts B, D, and supplemental plans)
- Long-term care insurance premiums
- Dental and vision expenses
- Hearing aids
- Copays and prescriptions
You’ll need to itemize to claim this deduction, but if you’ve had a high medical year, it’s worth running the numbers.
Don’t Leave Money on the Table
Tax season doesn’t have to be stressful—or expensive—if you know the rules. Many seniors unknowingly overpay simply because they don’t claim the deductions, credits, and loopholes available to them.
A little planning can go a long way. Whether you work with a tax preparer or file on your own, make sure you’re using every advantage the tax code gives you after 65.
You earned it.
This post is an excerpt from my book: Tax Loopholes Just for Seniors: 33 Ways to Slash Your Taxes Right Now, available now at Amazon.com in paperback and eBook formats. Inside, you’ll find dozens of proven strategies to help retirees legally reduce taxes, protect retirement income, and keep more of what you’ve saved.
Disclaimer: This blog post is intended for informational and educational purposes only. It is not tax or financial advice. Individual situations vary, and tax laws change. Please consult a qualified tax advisor or financial professional to discuss your specific circumstances. The author assumes no responsibility or liability for decisions made based on this content.