Brandon Miller, CFP –
As a kid, I loved a social game called Stratego, which is different every time you play it. You are trying to protect your flag while discovering another person’s flag. This requires you to move your pieces in the right way to avoid the obstacles your opponent puts in front of you (miners can, for example, blow up bombs).
I think retirement income planning is a bit like playing a strategist. You have many pieces with different values - IRA, 401 (k) s, Social Security, etc. – which you can change in different ways. There are hidden bombs, like high inflation or serious illness, that can detonate part of your wealth. But there are also strategic ways to avoid or circumvent these challenges.
The first step in setting your “pension” for retirement is to determine how much money you will need. For this article, suppose you have already calculated that amount. Now you need to plan where those funds will come from each month.
A good rule of thumb is to spend your taxable bills and savings first. Then contact vehicles with deferred taxes, such as IRAs and 401 (k) s, and finally, Roth accounts without taxes. This helps keep tax breaks as long as possible.
Here are some other moves to consider:
Be strategic in terms of taking social security income.
There is more to ask for SSI than we have here, but here are some key things: At the age of 62, you who are eligible can start using your fee, although it will be significantly less than if you wait. This reduced amount lasts for the rest of your life. With the full retirement age – 67 or 66 and the change for those born in the fifties – you will receive your full benefit. Postpone taking SSI until the 70th and your monthly payment will be 32% higher.
Health, savings, marital status and other factors affect your time. But overall, if you have additional sources of revenue to solve the problem, waiting as long as possible to collect SSI is a good move.
Install financial fences.
One tactic is to recreate your salary by pouring all the income you earn from different sources into one bucket and then taking out what you need every month or every two weeks. This provides discipline and structure to help you spend what you need.
Knowing that the market is volatile, you can also create a shock absorber by financing an emergency account with 1-2 years of cost. You draw on this account in ugly years instead of selling the property at a loss, and then replenish the fund when the market recovers. Repeat this and you can help avoid crashing your plans whenever the market crashes.
Pay attention to taxes.
Your retirement income can dramatically affect what you pay for health care. Unlike the income tax that is paid, Medicare costs are a steep cliff. For example, individuals earning $ 88,000 or less in 2021 ($ 176,000 or less for couples applying together) will pay a standard premium of $ 148.50 per month for a portion of Medicare B. Earn more than half / three-quarters of a million for individuals / couples and now you pay $ 504.90 a month for the next calendar year – almost 3.5 times more. Thus, acquiring a large inheritance or selling your home could result in significantly higher health care costs.
Also, when you are 72, Uncle Sam becomes impatient and asks you to withdraw some money from deferred tax instruments. These required minimum distributions (RMDs) are based on your balance and life expectancy. Keep in mind that Roth’s tax-free money has no RMDs in your life — because the government already has its money — although your customers may have to pay RMDs to avoid penalties.
RMDs for highly balanced IRAs could put you in an expensive tax. Instead, you could convert to a Roth IRA or significantly downsize your traditional IRA before RMDs start. Those who plan to donate pots of cash to charity can use a qualified charity distribution. This gives all or part of your RMDs to the charities you specify. The gift does not count as taxable income for you, nor does your charity pay tax on it. Win-win!
In short, Stratego is a game; your pension is not. But in both cases, smart planning can help protect what is most precious – your flags on the board and your dreams in real life.
Brio does not provide tax or legal advice and nothing contained in these materials should be taken as such. The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations to any individual or on any particular safety. The intention is only to provide education about the financial industry. To determine which investment might suit you, consult your financial advisor before investing. All previous performances discussed during this program are no guarantee of future results. Not all indices listed for comparison are managed and cannot be invested directly. As always, keep in mind that investing involves risk and possible loss of capital; seek advice from an authorized professional.
Brio Financial Group is a registered investment advisor. SEC registration does not constitute Brio approval by the SEC nor does it indicate that Brio has achieved a certain level of skill or ability. Advisory services are offered only to clients or potential clients if Brio Financial Group and its representatives are properly licensed or exempted from licensing. Brio Financial Group cannot provide advice unless there is a customer service agreement.
Brandon Miller, CFP®, is a financial advisor at the Brio Financial Group in San Francisco, specializing in helping LGBT people and families plan and achieve their financial goals.
Published September 9, 2021
