Jacob: Hey, friends, and welcome back to another episode of Retirement Answers. My name is Jacob Duke. I am your host as always. This week on the show, I wanna share with you 10 retirement hacks that can save you money. So we're talking about those 10 things, but first, if you are a frequent listener of the show and you're enjoying it, I would much appreciate if you shared it with a friend, told somebody about it, because they can benefit from these same conversations and learn a little bit along the way.
And also, if you are enjoying the show, I'd appreciate if you gave a rating and review there on Apple Podcasts or Spotify. You wouldn't believe how much it actually helps other people just like you find the show, helps the algorithm know to share my podcast with more people. So with that, let's go ahead and jump into these 10 retirement hacks. The first one is optimizing your Social Security timing. So most of the time when we think of Social Security, we think of our benefits.
We think of what we would get on our own, and typically, if we delay those, we can get a higher benefit, whether it be delaying it from 62 to 67 or whatever our full retirement age is or past our full retirement age up until 70. 70 is the highest age you can actually benefit from delaying, so once you reach age 70, it makes no sense to not take it at that point. But the key here is that every single year you get anywhere from six to 8% increases that you delay. So if you delay from 62 to 63, then you get a 6% bump in your benefits, and if you do this from 62 all the way to 70, that is a pretty good chunk of money. And once you reach your FRA, your full retirement age, your annual increases go to 8% every single year from that point until age 70.
So, it does benefit you to increase your Social Security benefits by delaying it. Now, are trade offs, right? What happens if we delay our benefits to 70 and then we pass away at 72? Well, we didn't get much out of the system that we paid into it over time. So that's some of the concern there on a lot of people's minds, especially as you are in retirement or thinking about retirement.
When do I take benefits? What are the pros and cons of one versus the other? There's gonna be a few different factors that play into this. Obviously, your your health, maybe what you expect your lifespan to be based on, you know, your family or historical circumstances that you have in your life based on your family's history. But the one point I wanted to make here is this, is whenever we think about Social Security, we always think about it as our own benefits, but I want you to also think about it as your family benefits.
So think about it if you are married. If you're not, obviously, might not apply to you, but if you are married and you have a spouse, think about the spousal benefits that could be in play that could increase your total household Social benefits, but also think about your survivor benefits. So what happens if you, let's say you have $3,500 a month as your benefit and you're married to someone who has a $1,500 a month benefit, guess what, that's a $2,000 difference. And if something happens to you and you have the higher benefit, well, your spouse, they're entitled to what's called a survivor benefit, and that means they can get however much you were getting. So they take the higher of the two in that scenario.
They don't have to necessarily stick with their own benefits. So there is an argument that could be made to delaying your benefit if you have the higher of the two within your household so that if you pass away sooner than expected, your spouse could benefit down the road by having that single survivor benefit that's greater than their own by a large margin. So the opportunities around Social Security are not simply just take it as soon as you're eligible to. You have to think about all the considerations. What are your benefits versus your spouse's if you are married?
What are the the spousal benefits that could be in play there? What are the survivor benefits that we might wanna think about down the road? And then how does this all play into our total tax situation? Because if you start taking your benefits at 62, but you've got $3,000,000 tax deferred, and you only spend $5,000 a month, well, you're not going to be able to spend down all of that $3,000,000 of tax deferred money by the time you get to RMD age, which means you would have to do some sort of Roth conversion strategy because your RMDs would be huge one day, but if you're already taking your Social Security benefits, what you're doing is is that's going to cause you to fill up a portion of those first two brackets, which are the cheapest tax rates, and you want to be able to use those rates, those low rates, to be able to do the conversions at that point. So the Social Security benefits actually get in the way of the Roth conversions being most impactful and beneficial for you.
The second hack I want to share with you is tax loss harvesting. Now you might have heard of this before, but in simple terms, it's whenever you sell an investment at a loss in order to offset either other capital gains or other normal income that you might have that year. So how's this beneficial in practice? Well, if we just use a basic example, let's say you have to realize $20,000 of capital gains in order to provide income for maybe buying a new car in retirement. Well, if you have to do that, and you then later in the year, the market goes down, or your portfolio goes down, and you then have the opportunity to sell something at a loss that has lost value, you can use any losses that you realize in that same tax year to offset the gains you already realized earlier in the year so that you bought that car with $20,000 of tax free money potentially.
Now, if let's say you don't have any gains in any particular year, but you do have other income, maybe you've got Social Security income that's taxable, maybe you have dividends or interest or earned income, well, you can still realize losses and you can take up to $3,000 per year and offset that against other income, such as normal earned income, dividends, interest, Social Security income, anything else that's not a a capital gain, you can offset up to $3,000 per year by using capital losses to do that. And here's the key. You can actually carry all of those losses forward. So let's say you have $10,000 worth of losses that you've realized because your portfolio has gone down. You can use 3,000 of that 10,000 this year to offset against normal income.
You can then use 3,000 the following year to offset again normal income, and then 3,000 the subsequent year, and then you have 1,000 left over in that fourth year that you can use to offset against normal income then. So what that does is, is that saves you taxes on whatever your marginal tax rate is, is let's assume that it's it's 22% that you find yourself in that particular year. So 22% of 3,000 is $660 you just saved yourself by realizing a capital loss, which doesn't take much effort and the opportunity's right there in front of you if your portfolio has gone down. But tax loss harvesting is something that is definitely helpful from year to year. Now what I would say about tax loss harvesting is it depends on how you use it because if you just start realizing losses just to realize losses and then buy back the same security, you know, thirty days later after the wash sale rule time frame is up.
In that particular scenario, unless you can use all of those losses this year to offset either other income or other capital gains, what you're doing is you're just resetting your basis into the future, and essentially, you're just gonna create larger gains for yourself in the future that you would have to pay taxes on at that point. So you wanna be thoughtful about how you do it and have a plan for it and understand that, you know, if you do realize a bunch of losses just because, you might want to do that if you had the opportunity to use that 0% long term capital gain bracket in the future through tax gain harvesting, and that's the third hack I want to share with you today. So number two is tax loss harvesting, but this one is going to be tax gain harvesting. Now, Jacob, I understand what tax loss harvesting is. What is tax gain harvesting?
And it's just the opposite where you intentionally realize capital gains, something that's gone up in value, but with the goal of doing so at a 0% long term capital gain bracket. So whenever it has long term capital gains, maybe called qualified gains or qualified dividends, there's three different tax brackets that you could fall into there. The 0% long term capital gain bracket, the 15%, and the 20%. Okay? So if you fall into that 0% capital gain bracket, you pay no taxes on your capital gains if your income is below a certain number.
Now in 2025, if you're married filing jointly and you have a taxable income of $89,250 or less, any capital gains that add up or are below, they have 0% taxes on them. Okay? And for single folks, it's $44,625 here in 2025. These brackets and these income levels adjust upward every single year. And so the main thing to know here is that a long term capital gain rate is always cheaper than normal income tax rates.
So think of it this way, the 0% long term capital gain bracket, that makes up the 10 and the 12% normal income tax brackets. And then the 15% tax bracket, that makes up the twenty two, twenty, and thirty two percent tax brackets, and then the, obviously, the 20% long term capital gain bracket, that's for the ultra high income, and it offsets against those really high tax brackets there. So the key there is that if you can find a way to have long term capital gains, it would make sense to do so. So let's say you've got a brokerage account, right, and you've got $500,000 there, but 300,000 of that 500 is actually capital gains. Well, if you have an income this year of $50,000 what you could actually do is realize gains intentionally because you're well below that $89,250 of taxable income, and then you can offset and you can pay 0% taxes on your gains.
You can do this over a multi year period, and essentially you created a Roth IRA in that brokerage account because you're strategically selling capital gains at a 0% bracket. So I want you to think about this opportunity now. Here's a little bit how this actually works. Let's go back to this $50,000 income scenario, and let's say you're married filing jointly, okay, and you've got a $30,000 standard deduction. So if we think about this, the key here on this 89,250, that level there for that 0% capital gain bracket, that's of taxable income, not modified adjusted gross income.
So if you've got $50,000, right, of normal income, and then you subtract out your $30,000 standard deduction, your taxable income is $20,000. Now what that means is is we can realize gains from $20,000 up to $89,250 that amount, which would be 69,250, that's how much of capital gains we can realize at the 0% long term capital gain bracket. Any capital gains that would happen or be added onto above that 89,250, those would be at the 15% bracket. So this is a progressive kind of system here. It's not all or nothing.
If you realize $70,000 of capital gains in this scenario, all 70,000 is at that 15% rate, only the portion above 89,250, which is $750. Everything below the 89,002 and 50, that amount is at 0% long term capital gain. So I've done videos on YouTube on this. If you didn't know how to channel there, go watch it, because I explain this in a little bit more depth and kind of show you visually how this works and plays out. But tax gain harvesting is, in my opinion, one of the most powerful tax planning opportunities for folks, especially in retirement if they do have that brokerage account with some capital gains in it.
The fourth hack I wanna share with you today is qualified charitable distributions or QCDs for short. So most of you have heard of what's called a required minimum distribution or an RMD, where you're essentially being forced to take money out of your tax deferred 401Ks, IRAs, 403Bs, TSBs, anything that's tax deferred because that money has not been taxed yet. Once you reach your RBD required beginning date, a certain age in the future, you have to begin taking money out annually, and there's a minimum amount in the calculation to reach that. So, what we're trying to do with these QCDs, these charitable distributions, what we're trying to do is offset or, fulfill those RMD requirements. So what you can do is once you're age 70.5 or older, you can donate or give charitably directly from your IRA up to $100,000 annually, and what that can do is that can satisfy your required minimum distribution requirements, okay?
So this is a powerful strategy, especially if you are already charitable and you want to continue to be. What you can do here is if you are going to have RMDs in the future, is you can plan on using a qualified charitable distribution to give to the favorite church or charity that you want to give to, and you don't have to convert all of your tax deferred money down to zero because you know that you're going to have tax free giving in the future through this QCD opportunity. So qualified charitable distributions are very simple to do. You simply take a check and you mail it directly from your IRA, from your custodian Schwab, Fidelity, Vanguard, whoever it might be, and they take care of it for you. But on your tax return, what you've got to notate is you're not going to get a tax return that says this was a QCD.
What's going to happen is you're going get your $10.99 like normal, but you have to file on your taxes that it was a QCD and keep your receipt from the charity showing that you made that contribution to them. So it is important to do the accounting right on the back end because there's no coding at the custodian necessarily that notates, hey, this was a QCD, therefore there's no taxes to be paid. You're gonna show on your ten ninety nine that you do owe taxes on the distribution, so it's your responsibility on your tax return to file it correctly so that you don't actually pay the taxes. But qualified charitable distributions are something I do with my clients all the time. For those of them that are charitable and want to give, it's an easy way to do so.
Eliminate taxes along the way, and the charity gets exactly what you wanted to give them. The fifth hack I wanna share with you is around HSAs and the opportunities that come with them in retirement. So we all know an HSA is a health savings account, and you can use it to pay for health care related items because what happens there, the benefit of an HSA, is that you get to put the money in while you're working in a tax deferred manner, so you get to deduct that off your income taxes for the year. The money then grows tax deferred again, right, so it's tax sheltered just like an IRA. And then whenever you take that money out for a qualified medical expense, what then happens is you get to take that money out completely tax free.
Okay? So it's a triple tax advantage and arguably the most beneficial account from a tax standpoint that you could use and save money into. Now, people think that HSAs are only helpful while you're working and able to contribute, but there are some different things about them that make them beneficial in retirement. The first of which is that once you reach age 65, you can actually treat your HSA as a traditional IRA, just a normal IRA because you can then take money out of the account. Once you're of age 65, you can take money out of that HSA for nonmedical expenses.
All you would do is pay normal income taxes just like you do on IRA distributions. So there's no penalty for taking that money out for a non medical expense once you're 65 or older. So think of it as just a traditional IRA once you do get to age 65 and beyond. Now, thing you could do here with an HSA is let's say that you retire early. Let's say you retire at 60 years old and you're wondering, hey, can I use my HSA to pay my premiums on my health insurance that's going be private because I don't have a group plan through my company anymore and I'm not yet 65, so I can't be on Medicare?
What do I do? Well, you can actually use your HSA to pay the premiums on COBRA benefits. Okay? So if you want to continue paying, it's obviously going be a higher premium, 102% of whatever the full premium is for your health insurance, but if you want to continue using your current employer's plan after you retire from that employer, you can use COBRA to do so and you can use your HSA to cover those premiums for eighteen months. Now, what you're not able to do is you're not able to pay for the premiums on a private health insurance policy unless you're also receiving unemployment benefits.
So maybe you filed for unemployment, you're trying to find a job, you can use an HSA to pay for health insurance premiums from a private policy in that scenario, but let's say you just retired, you're not looking for unemployment, you're not trying to find work, you cannot pay for your health insurance premiums in that scenario with your HSA. Now, once you do get to 65 and beyond, you can continue paying for your health insurance premiums with an HSA. For Medicare Part B, D, and then also Part C, which is also called Medicare Advantage, what you cannot do is you cannot pay your premiums on a Medigap or Medicare Supplement policy with an HSA. So Part B, Part C, Medicare Advantage, and then Part D, those three items, you can use your HSA to pay the premiums on that and obviously deductibles that you might have as well, but you cannot pay for your Medicare Supplement or Medigap policy premiums with that HSA. So that's that's a lot there on HSAs and how you can use them once you are retired, maybe once you reach age 65 for for health insurance purposes and paying for premiums, that's what you might need to know there.
Now, one of the things that I like to emphasize or encourage my clients to do is is build up your HSA, save into it while you're working, max it out every single year, and then don't spend it whenever you have a health issue come up or you need to pay for something that's health related. Keep the money in the account, invest it along the way, and then what you can do is keep all of your receipts from all of your different medical costs that you have come up. Keep all of it for however many years you want to keep them, twenty years, I don't care. What you can then do is then you, in the future, you can take money out of your HSA and offset your distribution with however much you've spent on health related items in the past. So there's no time limit on when you can take money out of your HSA for a health related expense.
Okay? So you don't have to take it out in the same year as something that happened that you paid for. You can take it out twenty years from now, and it still qualifies. So that's as it stands today. I don't know if that's ever gonna be changed or that that little loophole is gonna be closed up.
But what you can do then is let's say you build your HSA up to a $100,000 because you've been saving into it for for fifteen years and you invested it along the way, and then you kept all your medical receipts, and then you just didn't pay for those things with your HSA. You just paid cash out of pocket. When you get to retirement, what you did was is you just built up another Roth IRA essentially because you get to take those distributions out of your HSA and you get to offset that against medical expenses you had ten years ago, and that's completely fine to do. So of it that way. That's like a next level kind of way to use your HSA.
It's something that most people that I find don't know that they can do. I would suggest doing that, especially if you can cover all of your health costs out of pocket with cash. The sixth retirement hack I wanna share with you is around Roth conversions and doing them strategically. We've all heard of Roth conversions. It's a powerful thing.
There's different ways to to do them, but what I wanna encourage you to do is focus on when you do them. So think about your lower income years and doing these conversions at the lowest tax rate possible. Now, some of you might not even need to do conversions. I'm not even saying you should or shouldn't. What I'm saying is if you do end up needing to do Roth conversions, do them strategically.
So here's when you need to be doing them. If you can, do them during your gap years. Now what is this? This is the time frame from when you retire until you either reach Social Security starting or your RMDs kicking in at 73 or 75. The reason for this is because most likely, these are gonna be the lowest income years of your retirement.
Think about it. Whenever you retire and you're no longer earning a salary and you don't have any fixed income, you don't have Social Security turned on yet, your RMDs are not kicked in, you have no income technically until you create it for yourself. And so what you can do is take advantage of these gap years, these low income years, and do raw conversions at the lowest bracket. So the 0% bracket is what I call it. That's your standard deduction.
Then you have the 10%, 12%, 22, and 24. Really focus on filling up the zero, ten, and 12% brackets at a minimum. Those are really cheap rates, especially if you don't have a state income tax. But either way, if you do, those are really cheap rates, and once you jump to 22, that's where it becomes a toss-up and a maybe. It depends on your situation and some of your unique opportunities or needs that you have.
But doing Roth conversions strategically during these low income years, they're kind of the only it's kind of the only chance that you're gonna have because once your RMDs kick in or once Social Security kicks in, you have a new income floor, meaning that's how much you will have an income or maybe have a pension that kicks in in the future. Try to do your Roth conversions before those things start happening, and you can do them at the lowest potential tax rate. Again, a Roth conversion only makes sense if you can pay tax today at a lower rate than what whatever you would pay in the future. Now, something that helps Roth conversions be that much more beneficial is having after tax money. So you can think about cash in a bank account.
You can think about brokerage account money, whether it be cash or stocks or something in a brokerage account, either way that's after tax money, you've got to have something to pay the taxes with unless you do withhold the taxes from your IRA, from the Roth conversion itself, although that does minimize the benefit because essentially you are putting less money in your Roth IRA that's going to be compounding compared to what you had in your IRA before. So you can benefit, in my opinion, you can benefit from doing Roth conversions and withholding the taxes, but the payoff is so, so much longer compared to if you're able to pay the taxes with cash and keep the full amount invested in that Roth once you have it converted over. So Roth conversions, think about them, do them strategically in these gap years during your low income years in retirement. The seventh hack to think about is maybe moving to a tax friendly state or just relocating in general. Many of you live in states that have income taxes, and some of the times those income taxes are not cheap.
So you have your federal tax rate, but also your state income tax rate. And if you move or relocate to a state with no income tax, like Florida, Texas, Nevada, among others, what you can do is you can then eliminate that much more percentage out of your IRA distributions, your Roth conversions that you're trying to strategize and plan out, maybe you have pensions that are subject to taxation. So relocating to a tax friendly state that has no income taxes on any type of income is helpful, but there are some states that don't tax retirement income at all. So for example, four zero one ks, IRA, or pension income is exempt from state taxes in Illinois, Mississippi, and Pennsylvania, but in Alabama and Hawaii, pension income is actually exempt from state taxes, although four zero one k and IRA distributions are not. So what I encourage you to do here is maybe do a little bit of homework and see, you know, number one, are we willing to relocate?
Is that something that's at at all a thought in our mind? And if it is, where should we go and what does our income taxes in retirement look like because of the state that we would be living in? So for example, let's say you live in Illinois right now and you don't want to move. Well, news, Illinois does not tax IRA, four zero one k, or pension income. K?
So basically, retirement income is not taxed in Illinois, although earned income is. So that's just an example of, you know, do your homework and research. Just because Illinois has a state income tax doesn't mean that retirement income will be taxed, and you wanna evaluate this for your state and see is there even a need for you to relocate. You'd hate to do so and then find out later that you didn't have to to save on taxes. So, maybe look at relocating to a tax friendly state or evaluate what your options are in the current state that you live.
The eighth hack I want to share with you is around IRMA, income related monthly adjustment amounts, which has to do with your Medicare premiums. And what this is, is this is a surcharge on your Medicare premium. So whatever the base premium is, if you earn too much money, if you earn above certain thresholds, you would have to pay an additional premium amount because you earn too much. Now here's the catch. It's not based on how much money you earned this tax year.
It's not when the penalty will apply. It's based on what you earned two years ago. So in 2025, your IRMAA surcharges will be assessed or based on whatever your income was in 2023. So if you're looking forward, it's always two years in the rearview that you have to pay attention to. What was your income that year, your modified adjusted gross income?
And then how does that relate to the current tax brackets this year for IRMA surcharges? Now here's what I want to emphasize on this, is that most people say, Jacob, I want to avoid IRMA at all costs. I heard about it. It's terrible. The reality is it's not terrible, especially if you stay within that first bracket.
It's like 70 or $80 more a month for Part B and just a little bit more for Part D as well. So what you've got to think about, it's not the worst thing in the world. It's not a forever surcharge. It's just one year at a time, and whenever I hear, Jacob, I want to avoid Irma at all costs, what that tells me is maybe we haven't looked at the full trajectory of our plan, the full projection, because what could happen here is you could avoid Irma in the gap years, the first, I don't know, ten to fifteen years of retirement, and then once you get to RMD age, you could be paying IRMAA forever throughout the rest of your life because your RMDs are so large. And so the point I wanna make is this, it might be completely worth paying IRMA today to increase your income by doing Roth conversions and some of these other tax strategies, so that in the future, you don't have IRMA for the rest of your life once your RMDs kick in because we've reduced your RMDs because of the Roth conversions we do now.
So think of it this way, maybe paying IRMA intentionally for a couple of years could save you hundreds of thousands of dollars in taxes, but also hundreds of thousands of dollars in Medicare premiums over the rest of your life if your RMDs would be so large in the future that you are forced into higher and higher IRMA brackets. So if you wanna actually see what those IRMA brackets are and you wanna learn about that, what I can do is I can send you a free template and kinda show you here's important numbers that you can look at. It's for 2025. This gets updated every year. So if you wanna copy that, you can just send me an email.
My email should be listed down below in the description. You can shoot me an email and say, Jacob, I wanna see a copy of that important numbers PDF, and I'll happily send it over to you. It's completely free. The ninth hack you can use is once you are of a certain age for most states, you have property tax relief programs. So look and see what your state has to offer, whether it be at the state level or the local level, maybe tax exemptions, deferrals, property tax freezes.
So many things that you can look for, but you gotta apply for them. So you gotta know what you qualify for, what to look for, and then be sure to go apply for them because you could be saving thousands of dollars a year on property taxes, especially in states with either high asset values or high property tax rates. So, think about property tax relief programs if you do qualify as a senior in your state or in your local area. And the tenth and final hack that I want to share with you is bunching bunching your charitable donations. So if you are charitable, and let's say you give $10,000 per year, right, to a charity and you just pull out of cash to do that, what you could think about doing is instead of giving $10,000 cash every year to your favorite church or charity, What if you did this instead?
What if you took $50,000 and you took that out of your cashier brokerage account and put that directly into a donor advised fund in one single tax year? What you can do is you can take 50,000 out, put it in the donor advised fund, and now you can use that donation to actually offset your normal income this year. That exceeds the standard deduction, so you would itemize in that particular year, and then you get to use your standard deduction the following years, even though you're not gifting any $10,000 out of your specific accounts every year like you were before. So you put $50,000 into this donor advised fund, then you can take $10,000 out every year like you normally would and give to that charity, but what you did was is you put all the tax benefits in one year, and then you get to continue taking the standard deduction moving forward, because here's the thing, let's say you are giving $10,000 a year to a charity, well, that's not above and beyond the standard deduction of $30,000. So unless you have a lot more other deductions that would be able to allow you to itemize, then technically, that $10,000 gift is not beneficial from a tax standpoint.
There's no benefit to it other than the fact that you're giving the way you wanna give. So what I'm saying is is you could actually be more thoughtful here and strategic and say, I'm gonna give like I am. I wanna give my $10,000 a year, but what if I bunched all of my contributions or gifts over the next five to ten years, take that and put them all in one tax year from a deduction standpoint, move that money into a donor advised fund, let that money get invested and grow actually over the next ten years, and then I can take however much I want, $10,000 from the donor advised fund, and move that and give that to the charity that I want to give it to. The key there is that you get to benefit from the taxes a lot more by doing this as opposed to no tax benefit just to give $10,000 every single year. Another thing you could think about as well is gonna be maybe appreciated stock holdings in a brokerage account, but you do have to pay attention to deductibility restrictions and and limits here based on how much income you do or don't have, so there are some different complexities to this, but it's something that if you are charitable, maybe think about doing it, exploring and looking more into this because bunching all of your gifts into one year from a tax standpoint could be beneficial for you, but then also it could actually if you put it in a donor advised fund, you can grow those funds even more and give more to the charity over time as well.
So hopefully these 10 different retirement hacks give you some thoughts and ideas around maybe ways that you can improve your retirement plan, and maybe we can save on taxes or actually give yourself more money in your pocket or keep more money in your pocket, and that's what I wanted to share with you today because this is your hard earned money. I believe that you should keep as much of it as possible, and that's part of my role here is to help educate you in the best ways that I can. So thank you for tuning in to this week's episode of Retirement Answers. We will see you next week. Hey.
It's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning in to this week's episode. I look forward to talking with you again next week.