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Retirement is a major milestone, and with it comes a new financial landscape. For Sam (65) and Sarah (64), who retired on July 1, 2025, understanding their tax obligations is key to managing their income wisely. Let’s walk through their first year of retirement and see how their income stacks up against federal and state taxes.
Meet Sam and Sarah: A Couple Entering a New Chapter
Sam and Sarah have spent the last four decades building a life together in the sun-drenched suburbs of Henderson, Nevada. High school sweethearts turned lifelong partners, they’ve raised two children, paid off their mortgage, and recently celebrated their 40th wedding anniversary.
Sam: The Steady Hand
Sam, 65, worked as a mechanical engineer for a local utility company. Known for his meticulous nature and calm demeanor, he spent his career solving complex problems and mentoring younger engineers. He officially retired on July 1, 2025, with a sense of pride and a well-earned pension.
Sarah: The Heart of the Community
Sarah, 64, was a beloved elementary school teacher. Her classroom was always filled with laughter, creativity, and a deep sense of care. She retired the same day as Sam, closing the door on a 35-year teaching career that touched hundreds of young lives.
Life in Retirement
Now, with their children grown and living on their own, Sam and Sarah are embracing a slower pace. They enjoy morning walks in the desert trails, volunteering at the local library, and planning road trips to national parks. Their financial strategy is conservative—they prefer the stability of CDs and U.S. Treasuries, with a modest amount in dividend-paying stocks and mutual funds.
Their goal? To live comfortably, give back to their community, and enjoy the freedom they’ve worked so hard to earn.
Income Snapshot
Here’s what Sam and Sarah earned in 2025:
- Interest from CDs: $10,300
- Interest from U.S. Treasuries: $24,000
- Dividend Income: $1,000
- Short-Term Capital Gains: $4,000
- Long-Term Capital Gains: $20,000
Total Income (AGI): $59,300
Tax Calculations
1. Adjusted Gross Income (AGI)
This includes all their income sources: $59,300
2. Modified AGI (MAGI)
No adjustments apply, so it’s the same: $59,300
3. Federal Taxable Income
After subtracting the standard deduction of $30,000 for married couples filing jointly:
$29,300
4. State Taxable Income
Nevada doesn’t tax income: $0
Federal Tax Breakdown
✅ Long-Term Capital Gains Tax
Their $20,000 in long-term gains falls within the 0% tax bracket for married couples (up to $94,050).
Tax Owed: $0
✅ Ordinary Income Tax
This includes interest, dividends, and short-term gains totaling $39,300.
Tax Owed: $4,239
✅ Total Federal Tax
After applying tax brackets to their taxable income:
$3,039
Tax Rates
- Marginal Tax Rate: 22% (the rate on their last dollar of income)
- Effective Tax Rate: 5.12% (total tax ÷ total income)
Key Takeaways
- Sam and Sarah’s federal tax burden is light, thanks to the standard deduction and favorable capital gains treatment.
- Their effective tax rate is just over 5%, meaning they keep nearly 95% of their income.
- Living in Nevada helps them avoid state income taxes entirely.
Important Disclosures: Retirement “R” Us, a registered retirement planning advisor, provides this information for educational purposes only. It is not intended to offer personalized investment advice or suggest that any discussed securities or services are suitable for any specific investor. Readers should not rely solely on the information provided here when making investment decisions.
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