Now that you're either retired or near to retirement, you need delicate maneuvering to preserve your retirement funds while taking a gradual income out of your nest egg. However, if you are in a high income tax bracket, the government could be waiting to take up to 35% of the income you obtain from your investments.
You may think about an annuity if you feel best having your retirement funds in an asset with a guarantee. Annuities are deposits with insurance companies and the safety factor is quite high. The profits are not taxed till withdrawn thereby providing tax relief on any earnings reinvested. This insurance companies, such as MetLife, Prudential and New York Life managed to get through the great depression so annuities with this caliber of company are secure.
With respect to your IRA retirement funds, you can also be at the age (over 70½) where you are forced to take IRA minimum distributions. However every year, do you find yourself sticking the money into a checking account or CD? Although there's something to be said about security and the FDIC insurance provided to those investments, it's important to also think about the impact of taxes and rising cost of living and how to invest. Over years where inflation is increasing, you could find that your 'after-tax' return on these insured investments is not keeping up with the living costs. Quite simply, your retirement funds are deteriorating in purchasing power.
As a practical matter, municipal bonds can offer an alternative and some tax relief because the interest is usually received free of federal, state and local taxes. This might help create more discretionary income to help meet living needs and preserve retirement funds. Of course, there are exceptions to the favorable income tax treatment for tax payers that are subject to the Alternative Minimum Tax (AMT) or who have invested in municipal bonds outside of their state of residence. You should keep in mind these particular bonds are backed by the credit of the issuing local government, and the principal and yield on these bonds may fluctuate with market conditions.
On another topic that impacts income tax, in case your beneficiaries inherit your IRA retirement funds, they'll have to pay income taxes on their distributions. Assuming that your IRA grows, this implies that the possible tax liability to your loved-ones may also increase. On the other hand, beneficiaries who receive investments that are 'outside' the IRA (i.e regular money, not in any retirement plan) will receive them at the fair market value on your date of death. In other words, you beneficiaries receive a 'stepped-up' cost basis on the non-IRA inherited resource.
As one example of this principle, you can have mutual fund shares in your IRA that are worth $100,000. Your beneficiaries would only enjoy say $70,000 of that after income tax. But, in the event you own the shares outside of an IRA, your heirs would obtain and sell the shares without incurring any income taxes (even though federal estate taxes may apply if the decedent's estate is greater than the estate exemption). This is some thing to think about if you are concerned about the end-result of your estate plan and minimizing the tax for all family members on retirement funds.