Your Financial Future

Seniors face many challenges when planning for retirement. Multiple surveys have indicated that the number one fear in retirement is running out of money. Because of this, many people live a” just in case retirement.” This means they are afraid to spend money in case something goes wrong. Maybe the stock market crashes. Maybe we have a recession or they need long term care. There are an infinite amount of things that could go wrong, so many people are afraid to spend their money.

            This was reconfirmed by a recent J.P. Morgan Asset Management study. Too many retirees aren’t tapping their nest egg until required minimum withdrawals. The Secure Act moved the age back to 72 before most people have to take RMDs out of their qualified accounts or face a 50% penalty. The required amount is calculated by using your account balance on the last business day of the year before. In most cases this would be December 31st, but it could be the 30 or 29th if the 31st was a weekend. This is than divided by an age based divisor.

            Defaulting to RMDs calculations can make retirement much less desirable than necessary. First many people do not enjoy the fruits of their hard work. Fear of running out of money becomes over powering. You deserve the best retirement possible. Second, this strategy can cause you to pay a lot more in taxes. Not taking money out of qualified account until you are forced to means you are paying ordinary tax rates, the highest in the tax code, on all your account growth. You could be paying lower capital gains or qualified dividend cost if the growth was in non-qualified accounts. Even better, could be no taxes on the growth in a Roth. You must invest tax smart.

            Delaying this growth until you have no choice can make your Medicare Part B premiums be much higher because of IMRA. They are also very difficult on a surviving spouse. This is because you only have one personal deduction and most tax brackets are close to half of the size for a single person. For most people, to save on taxes, this would probably involve taking some distributions from qualified money sooner.

            The J.P. Morgan survey aligns with other research which shows retirees with guaranteed streams of income such as Social Security or pensions are less concern about longevity risk and more willing to enjoy life. The good news is you may be able to create your own guaranteed income stream for your family. Have a written financial plan that accounts for emergency money, guaranteed income, inflation protection, health care cost, legacy planning and growth. This is much more difficult to achieve if you do not have a written plan.

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