The retirement landscape has changed drastically over the past few years, and more Americans are worried about their financial security.
The average retiree believes they need $823,800 to retire comfortably but has just $288,700 saved, according to a 2025 survey from Clever Real Estate.
That gap has led some older workers to remain in the workforce, pushing up the average U.S. employee age from 40.5 years to 42 years in the past three years.
With these pressures, having a tax strategy for retirement is critical to maximize your finances when you give up work for good, said CPA Armine Alajian, CEO of Los Angeles-based accounting firm Alajian Group Inc.
Alajian, who has spent more than two decades advising companies and clients on tax and finance-related matters at major U.S. firms, shared her top tips with The Independent. The interview below has been condensed and lightly edited for clarity.
Consult a professional
In my experience, it’s assumed that everyone knows how to do retirement taxes and has the right strategies – but not everybody does.
Some people haven’t built a tax strategy that will benefit them in retirement, and they may not take into account changes to tax rules. That lack of planning and awareness can cause issues when people get to retirement age, because they may end up paying more taxes than they planned for.
Professionals help you be aware of what impact your financial decisions have on retirement income. It’s better to have at least an estimate of that financial impact rather than being shocked by it later.
So, before a big tax-related decision – like selling a major asset, starting retirement or another big life event – talk with an accountant who can say, “Okay, let’s run the numbers on this and see how it works out.”
For example, if someone is debating between retirement accounts that require tax payments now when money is added to them or later when withdrawals are made, an accountant can show how each option impacts their income after they retire. With the numbers laid out clearly and a tax pro explaining what they mean, it’s easier to make a more informed decision.
Remember that your retirement accounts require withdrawals
Many retirement accounts out there, such as 401(k)s and traditional IRAs, have something called “required minimum distributions.” In general, the IRS requires you start withdrawing money from retirement accounts between 72 and 75 years old, depending on when you were born.
This requirement is in place for retirement accounts that don’t collect tax when you deposit income into accounts, such as 401(k)s and traditional IRAs.
So, as you plan for retirement, remember that you’ll be forced to take out withdrawals from a 401(k) or traditional IRA when you hit a certain age, generally speaking.
Those withdrawals are usually taxed as income at the federal level and, in some cases, at the state level, so you’ll need to set aside money to cover your tax liability when you file the following year.
Don’t forget state taxes
A lot of the retirement tax discussion focuses on federal taxes, but I’ve found that retirees have a tendency to forget about state taxes. The tax liability they face on that income when they file can be a shock since they didn’t anticipate it, especially in states like California and Hawaii that have income tax rates above 10 percent.
My advice for future retirees is to consider where you’re going to live in retirement. If you plan to stay in a state with income tax, you’ll need to factor that into your retirement income. If you’re open to moving to a state without income tax, there are eight to choose from: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming.
Depending on how large your retirement distributions are, moving to a state with no income tax could save you thousands in income every year.
For current retirees, find out what your state income tax rate is and make sure you set aside money to cover your tax bill when you file your taxes.