You may also want to consider a longer-term strategy for drawing from your qualified retirement accounts. That's because withdrawals from a traditional IRA generally will be included in your taxable income calculations. Qualified withdrawals from a Roth IRA, however, are generally not included. So if you have both, you may want to carefully consider whether you should make withdrawals from your Roth or traditional IRA first.
A word of caution if you are considering converting a traditional IRA to a Roth IRA: Any pre-tax amount you convert will be counted as income in the year of the conversion. That may be worth it, though, because of the Roth IRA's other tax advantages. Another option is to convert an investment that earns taxable income, such as a taxable bond portfolio, into a tax-deferred account, such as a deferred annuity. You could structure the annuity to begin paying income in a few years, when you expect your taxable income, as well as your overall tax rate, to decline.
Know the Earnings Limits
Those hoping to work in retirement need to be especially careful if they're planning to claim Social Security benefits early. Even if you’re just working part-time, it’s important to consider how that continuing income will affect your benefits.
The SSA caps how much you are allowed to earn if you start taking your benefits before full retirement age, which is 66 for most baby boomers. For the most recent annual earned income cap, view the current annual contribution limits. For every $2 you earn over the limit, the SSA withholds $1 off the top of your benefits. Once you reach the year that you'll turn full retirement age, the earned income cap goes up, and for every $3 you go over, it’s a $1 withholding during the months until your birthday.