Why retirees’ tax rates may be higher than they expect

You may have stopped working, but Uncle Sam is still digging into your pocket.

Though high-income retirees are looking forward to lower taxes once they’ve exited the workplace, they can still expect to pay stealth taxes in the form of Social Security income levies and higher Medicare premiums.

“For a lot of retirees, the thinking is, Oh, they’re retired and their tax bracket is going down,” said William Reichenstein, professor emeritus at Baylor University.

He led a discussion on tax-efficient withdrawal strategies in retirement at the Financial Planning Association’s annual conference in Chicago this week.

“Their tax bracket may go from 24 percent to 22 percent, but because of Social Security taxes, their marginal rate goes from 24 percent to 40.7 percent — it will increase sharply,” he said.

That rate can jump to more than 46 percent after the reduced rates on individual income taxes expire at the end of 2025, he said.

Here’s why lower income-tax brackets may not necessarily translate into a smaller tax bite overall.