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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Hi. Mike Decker, author of the book How to Retire on Time. Here's a question I was recently asked on my Retire on Time q and a. Check it out. So...
Mike:Alright. What's the next question, David?
David:Yeah. Next question that we've got here. What do you do... I'm sorry. When do you do Social Security optimization in your planning process?
Mike:Mid to end of the strategy session.
David:Okay.
Mike:And here's why. Are you more concerned about getting the most out of the government or maximizing your quality of life? And some people would think that's the same question. It's not. See, if you delay Social Security, it may add more pressure on your portfolio.
Mike:Mhmm. Is that worth it or not? Now you might live a long time, but the cost is either time or less money. So in other situations, you might want to delay it for tax reasons because if you do live a long life, your required minimum distributions might just push you into a position you don't wanna be in.
David:Okay.
Mike:Now in the opposite side, there might be some opportunities at the beginning of your plan that you take advantage of it, and then you need to do x y z. So it's... People will often start with Social Security optimization and say, here's how long I expect to live. How do I get the most out of Social Security? And then they force that into their plan without moving it.
Mike:I wanna look at tax withdrawal opportunities or sequencing your withdrawals in the different phases of your life first. I wanna understand what are the inefficiencies on the projections, and then I wanna take those, and then acknowledge if Social Security were filed here or there, what would that look like? I think it's later in the planning process because you can always change your mind and file earlier or later. But if you understand the ripple effect that when you file for Social Security, when it has on the rest of the plan, that's a lot.
David:Yeah. So what kind of things then specifically are you planning before you get to Social
Mike:Security? So, like, let's say you wanna file for Social Security at 62 years old.
David:Okay.
Mike:Okay. Well, why? Because I I just wanna get the most out of my my Social Security as possible. Okay. Well, are you aware of if you delay your Social Security, and we took income from your brokerage account, let's say you had a brokerage account, that you could basically paid zero taxes for a couple of years.
Mike:Oh, well, but Mike, your Social Security would be tax free too. That's true. It would be tax free. But that's still gonna show up in your standard deduction. Maybe, maybe not, depends on the modified adjusted gross income or the provisional income tax calculation.
Mike:And then you've also got these IRA assets over here. Are you more concerned about taking the most out of Social Security, or do you wanna take 30,000 from your IRA, move it to your Roth tax free, and then spend that later on? Oh, and by the way, you take it at Social Security at at sixty two and one month years old, you're taking it at an accelerated reduction because there's an accelerated reduction at 64 years old or or younger? And are you aware of the long term consequences of locking in earlier? Because you're you're basically increasing at a cost of living adjustment at 62 years old and accelerate a reduction for the next fifteen to twenty years or thirty years.
Mike:Are you aware of that ripple effect? Yeah. But I think if I died soon, I would rather do that. Okay. Well, if you're planning on dying soon, then yeah.
Mike:I guess we don't even need do retirement planning because you won't spend your money.
David:Mhmm.
Mike:But what if you didn't die soon? Mhmm. Which one do wanna plan for? The idea that you might live a long time, or that you wanna spend all of your money and have no backup plan?
David:Mhmm.
Mike:There's balance in all things. And so if we plan for Social Security first, we may get in the way of other strategies that could help you get more out of your money. Are you okay with that? Most people, when they see the numbers go, yeah, okay, we wanna do Social Security this way.
David:Got it. And then you can go on to other things.
Mike:Yeah. And some people say, look, I don't know, but I just need Social Security to be be filed at this date for this reason, and I'm okay with the the detriments or the potential downside. No problem.
David:Okay.
Mike:But... And this is neutrality. So we try to ask neutral questions. We try to plan from a neutral position. We just wanna know what do you want, and there's no agenda.
Mike:It's here's the benefits, here are the detriments of this strategy or that strategy. Which one's more suitable for you? Which one do you prefer?
David:And then you're not gonna try and strong-arm them or or talk them out of something to sort of win your position. Right? Yeah.
Mike:Why? Yeah. It's their money. What do they want their money to do for them? That's the underlining question.
David:So even if you personally... Well, I wouldn't do it that way. But if if that... If it's more comfortable for them, that's where the neutrality comes in where
Mike:Oh, yeah. Yeah. Oh, yeah. Mhmm. Everyone's different.
Mike:We all have a relationship with money. That relationship, if I'm gonna get philosophical, is a construct of what the world has told you on how to handle money. I'm not saying it's healthy. I'm not saying it's unhealthy. What I'm saying is we are all products of the world that we we have existed in.
Mike:Are the experiences that have shaped our behavior? And there are certain things that we just have prioritized because of our constructed self on what we're trying to accomplish. Not gonna go through a therapy session to try and undo all that. Most people don't want that kind of a conversation, and that's fine. If you did, let me know.
Mike:We can dive into the trauma that you had from your childhood, and how that shaped in your relationship with money from a fear based position, how you are uncomfortable now at retirements not spending money, and how your kids are gonna be driving BMWs and taking first class trips because you're uncomfortable spending the money. Or we can work through some of that. I'm not a therapist, but I do do this with some clients.
David:Mhmm.
Mike:Or you can say, and most people they don't wanna talk about that, and I get it. That's that's not what they're hiring me for. But I could... I can see when people's relationship with money is built on a constructed self. It's very apparent then the path we need to have moving forward.
Mike:It's their money. They got it. Let's make sure it satisfies their conditions, what they want the money to do for them. It's not my place to judge. It's my place to make sure that we're going to where you wanna go, and we're getting there in a durable and predictable manner.
Mike:So... This is why we highly encourage people to sign up for our our planning process. Plan first, strategy second, then the products third. The tools in the toolbox. What tools go in your toolbox?
David:For
Mike:your... The strategies you wanna implement, and the plan you wanna follow. Go to retireontime.com/call,call, to get started. Schedule a call. Start that conversation.
Mike:It doesn't cost you anything to get the first version of the plan, see the projections, and explore a couple of strategies before you have to commit to anything. And then if you do commit, it's a one time fee to finish the entire planning process.
David:Mhmm.
Mike:Alright. What's the next question?
David:Next question. Oh, it went away a bit. Now I've got
Mike:it back.
David:Is is a Roth conversion with a little bit of an IRMA surcharge still worth it?
Mike:I would say it depends on long term consequences. So if you can couch the IRA to Roth conversion as a life event as well, you could file form SSA dash four four, do one or two years, and then file the form and say, you know, here's what happened, here's where your income is moving forward, and then drop it before waiting for two years. That tends to lighten the load a little bit. It's dependent on do you have required minimum distribution issues? Do you not?
Mike:Are there health issues? And is the money going to go, let's say from your IRA to your kids, and your kids are high income earners, then maybe the net difference is better for you to just pay Irma as a part of the tax calculations with the conversion, because if you don't do this, the kids are gonna get hit with higher tax brackets anyway. Mhmm. So there's just... There's multiple factors in there.
Mike:There are ways to lead up to it, and there are ways to then lower the IRMA payment very soon after. Just you have to understand the navigation of how to position it, how to talk to the Social Security Administration, and Medicare Administration, and so on to then lower those benefits, and so on. But it's a simple... I shouldn't say simple. It's a straightforward break even analysis because we're asking how do you get more of your money based on your expectations and timetables.
David:Okay. Okay. So it may or may not be depending on the situation... Person's situation.
Mike:I see those who have saved more, it's worth it. Those who have saved less, it's not.
David:Oh, okay.
Mike:It feels good to solve a problem and be done with IRA to Roth conversions. It feels good. But it's just hard to stomach that good feeling once you see all of the coupons that you're leaving on the table for the rest of your life.
David:Mhmm.
Mike:And then one thing to to consider is, Irma earlier on for two people may be worth it when you realize the Irma later on for the surviving spouse.
David:Okay. The
Mike:spending might not change that much. So Irma at the second tier, let's say, might be a better situation than Irma in the fourth tier for the surviving spouse.
David:Oh, right. And we're talking about tiers. Like, the the surcharge goes up and up and up, right, depending on how high your income is. Yeah. Right.
David:And that... That's the the surcharge above normal Medicare Yep. Which is like
Mike:Part b.
David:$209 or something for 2027.
Mike:That's all the time we've got for today's show. If you enjoyed the show, thanks for tuning the podcast. Don't forget to subscribe, leave a rating, and as always, tell your friends, the larger the subscribers are, the better the content can be that fuels your preparation for retirement. We'll see you in the next show.