Your Financial Future: Enjoy your retirement

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” lifestyle in retirement. This means they are afraid to spend money in case something goes wrong. Maybe the stock market crashes. Maybe the country goes into a recession. Maybe the retiree is concerned about eventually needing long-term care.
Maybe they were afraid that high inflation – like the type we are now experiencing – would destroy their retirement dreams?
The bottom line is that there are an infinite number of things that could go wrong, which leaves many people 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 73 before most people have to take required minimum withdrawals out of their qualified accounts or face a 25% 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 Dec. 31, but it could be the Dec. 29 or 30 if the Dec. 31 falls on a weekend. This is then divided by an age-based divisor.
Defaulting to those calculations can make retirement much less desirable than necessary. First, many people do not enjoy the fruits of their hard work. The fear of running out of money becomes overpowering. 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 costs if the growth was in non-qualified accounts. Even better, could be no taxes on the growth in a Roth. You must be tax-smart in your investing.
Delaying this growth until you have no choice can make your Medicare Part B premiums be much higher because of the Income-Related Monthly Adjustment Amount. This is when Part B and Part D premiums can increase due to higher income. 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 concerned 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.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.”
If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.