In my case, it's not my plan to totally avoid paying federal taxes when I retire, but there's still a good chance it's I'll pay close to nothing. I only need about $40K to live. But, even if I went with the short form rather than itemize, I'd be able to take a standard deduction of $6300 (single) and personal exemption of $4000. So that only leaves $29,700 to account for.
Well, the 25% tax bracket kicks in at $37,451 for 2015. Qualified dividends and capital gains are taxed at 0% if you're in the 10 and 15% brackets. So, I could make up to $47,751 and not pay any federal tax. Higher, actually, considering some long term capital gains would have a cost basis, so some of that "income" would really be return of capital.
Of course, there are still state and local taxes involved. And real estate taxes. Plus mortgages, and charitable deductions. So, chance are I'll be itemizing, which means an even bigger write off. I'm not sure how health insurance premiums fall into the equation, though. If I'm retired, and paying my full premium, it's considered a medical expense, right? However, don't you expenses for the year have to be more than 7.5% of your income before you can write anything off?
Also, I guess one way of looking at some of these deductions, is that while you're not paying taxes yourself, you're deflecting them to other sources. And in many cases, you're actually paying out much more than you get back in a tax writeoff. For instance, when I write off my mortgage interest deduction, I get back about 33 cents on the dollar (it would be much less once retired). However, that dollar, and many more, are going to the mortgage company, who pays taxes (or finds creative ways to dodge them, itself). That mortgage company keeps people employed, who pay taxes. When I write off my state and local, and property taxes, I'm helping keep government people employed at the state and local levels, and help keeping that government running. I'm paying for schools, roads, and infrastructure at the state and local level. When I make donations to a charity, that helps keep the poor, in some way, off the government dime.
So, if you have a big mortgage, big property tax bill, high state and local taxes, etc, you're still shelling out an awful lot of money, even if it helps you to get out of paying federal taxes.