Subscribe
Share
Share
Embed
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to How to Retire On Time, a show that answers your retirement questions. We're here to move past that oversimplified advice and get into the nitty gritty. As always, text your questions to (913) 363-1234. Again, (913) 363-1234. And remember, this show is just a show.
Mike:It's not financial advice, so make sure you do your research. David, what do we got today?
David:Hey, Mike. Everyone says I should do an IRA to Roth conversion, but I'm not so sure.
Mike:Yeah. Well, it's good that you're questioning. Yeah. It's good to question. Here's the problem I have with with this idea.
Mike:It's based usually on the idea that you wanna get the most out of Social Security. And let's say, yeah, well, I might not live that long. I wanna get the most money out. I paid into Social Security my whole life. I wanna get the most money out of it.
Mike:The problem is if you're just like, well, I don't need it. I'm still working. I'm still living my life. If you take it and you still work and you earn more than $21,000 a year, you're getting penalized. I mean, that's not technically a penalty.
Mike:It's just every $2 more you earn, $1 is deducted from your benefit.
David:Okay.
Mike:So it's very inefficient. Also, you need to consider your tax ramifications. So if you have income and you don't really need the Social Security, and you add it in there, now you're just paying more in taxes. Is that really worth it? And then if you're also wanting to do IRA to Roth conversions, is that getting in the way?
David:Does that count as income when you convert your IRA to a Roth? Mhmm. Okay.
Mike:Yep. It's an income distribution, so income taxes, that affects your provisional income to your Social Security. It affects your adjusted gross income, the IRA to Roth conversions, and so on. So there's this ripple effect. When you file for Social Security, it could affect your income taxes, your income tax brackets.
Mike:It could affect your long term capital gains if you're taking income from long term capital gains. It could affect the tax rate of Social Security. Maybe you're able to do some tax work beforehand, and then you got your Social Security more tax efficiently. It could affect your legacy planning. If you delay Social Security, it's gonna affect your estate or your legacy planning if you file earlier on.
Mike:When you file for Social Security, that could also affect it. If you just randomly take it and reinvest it, it's fine, but it also might push you up into Irma and affect your health care if you're 65 or older. So there's all these caveats that you need to understand if you file for Social Security. What else does it affect, and what's the break even of that consequence? For some people, filing early makes complete sense.
Mike:Yeah. That's not to reinvest.
David:Alright.
Mike:Because why would you take it, Social Security, at a discount just to put more money in there? I mean, I guess there's an argument for that because you might not need Social Security. You might as well just take it. You're not taking money from your assets, but you've living off a pension. That's all you really need.
Mike:So you might as well just take it, put it in the market, because everything in the market is for legacy planning. Like, I can see certain arguments, but in those situations, they're often far and few between. They're the exception to the rule most people are looking to take income from their assets. That's what complicates the situation. Again, the question is usually based on the idea that I've paid into Social Security, so I want the most out of Social Security.
Mike:And maybe if I take it earlier at a discount, I can grow those assets with the assumption that the growth of those assets will then offset the increase of the return or the higher benefit later on. Maybe I end up with more money. There are certain situations that may make sense, but oftentimes there's unintended consequences where it wouldn't make sense. Don't treat Social Security as an isolated optimization objective. Treat it as a part of the overall machine.
Mike:I don't know much about cars. Okay?
David:Alright.
Mike:Really don't. But I know enough that if you adjust one part of the engine or exhaust or something else, there's a benefit to it, and maybe there's a detriment to it. Sure. Yeah. Maybe you can adjust a part of the car to increase your horsepower, but the detriment is it's causing more gas or something like that.
Mike:Sure. Again, I don't know much about cars. I'm trying to off the cuff create an analogy here. Mhmm. But do you see the benefits there in the Dutchman?
Mike:Like, there's there's gotta be a trade. Yeah. With Social Security, there's a trade. If it only looks like there's upside potential, and it's just a no brainer, you're missing something. That's all the time we've got for the show today.
Mike:If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.
Mike:Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.