Many Americans dream of early retirement — and a growing number are making it happen. But too often, those who retire before 65 discover they are needlessly overpaying taxes on their income.

The good news: With smart planning, married couples can legally access up to $126,700 of income each year completely tax-free. Let's explore how this works and offer a step-by-step blueprint for families aiming to retire between ages 55 and 65.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

To unlock this "zero-tax" strategy, retirees must understand two important thresholds for 2025:

In combination, this allows a couple to receive $126,700 of taxable‐income cash flows — via dividends, interest and capital gains — without owing a dime of federal income tax.

Most retirees focus on tax-deferred (401(k), 403(b) and IRA) accounts — but the real engine of the zero-tax strategy is taxable brokerage accounts invested in low-cost, tax-efficient funds. Here's why:

Over the six to eight years before retirement, consider focusing on the following three steps:

This approach creates maximum flexibility in retirement. By strategically timing withdrawals from Roth, taxable and tax-deferred accounts, investors can fill up the 0% capital gains bracket and standard deduction, effectively zeroing one's federal tax bill each year.

To illustrate, consider Bob (62) and Mary Jones (62), who retired at the end of 2024. Their balance sheet:

They need $120,000 per year (net of federal tax) to cover living expenses. Their Social Security strategy calls for Mary (the lower-earning spouse) to begin benefits at age 67 for $30,000 annually, and Bob to claim at age 70 for $45,000.

In the meantime, they will rely on savings and investments to meet their cash-flow needs.

Here's how Bob and Mary can take $120,000 in 2025 without paying federal income tax:

The combined taxable income is $30,000 (ordinary) + $90,000 (long-term gains) = $120,000. By staying within the 0% capital gains bracket and the $30,000 standard deduction, Bob and Mary owe zero federal income tax for 2025.

Meanwhile, their Roth IRAs — invested for growth — should continue earning returns sufficient to preserve principal over time.

Couples with larger portfolios, different account mixes or higher ordinary income can push this framework further.

For instance, filling the 12% ordinary-income bracket (currently $96,950 for married couples), you can augment your cash flow while still keeping overall taxes extremely low. Customized projections can show how much additional capital gains are permissible before triggering a higher tax rate.

If you'd like to retire early — or simply reduce your retirement tax bill — consider these guidelines:

Most retirees overpay on federal (and state) income taxes simply because they lack a roadmap for taxable withdrawals.

By leveraging the 0% capital gains bracket and the standard deduction, you can legally funnel six figures of yearly cash flow into your pocket — completely tax-free— and stretch your retirement savings much further.

Retirement planning doesn't start at age 65. Whether you're considering semi-retirement at 55 or aiming to walk away from the workplace at 62, the sooner you build your taxable account and map out a withdrawal plan, the more years you'll have to compound wealth with minimal tax friction.

If early retirement is on your horizon, now is the time to review account allocations, fund Roth accounts, and set up a tax-efficient withdrawal strategy.

With the right framework and ongoing tax planning, you might retire years earlier — and enjoy a tax-free income stream that most Americans never even know exists.