Pure’s Senior Financial Advisor, Allison Alley, CFP®, MSBA, AIF® helps you define your unique retirement vision.
Outline
- 00:00 Intro
- 00:37 Retirement Expectation vs Reality
- 1:46 Gap Between Work and Retirement
- 3:48 Find Purpose in Retirement
- 7:50 Stay socially engaged
- 10:27 Sharing what you know
- 15:46 Q&A
- I may not be watching TV a lot, but I do find myself scrolling through my phone for long periods of time. How do I set boundaries with tech, so it doesn’t feel overwhelming?
- How can I use technology to improve my quality of life, physically and mentally?
- What’s a safe pace to travel when you’re retired and expect to live 20+ years? How do I make my money last and plan to travel as much as I physically can?
- I have a son that moved back in after our retirement. How do I guide him in the right direction so he may be able to live on his own again?
- 21:23 Plan for your lifestyle
- 21:40 Phased Retirement
- 22:40 Budget to not run out of money
- 25:10 Minimize sequence of returns risk
- 27:00 Social Security Taxes
- 28:26 Tax diversification
- 32:32 Q&A
- For provisional income, is it for both spouses in the example?
- What percentage of tax should I have taken out of Social Security distribution? Or is there a set percentage?
- I want to take money from my Roth IRA but I was told I’d be taxed on the gains. Is this correct and what would be the impact?
- I just started receiving Social Security and I’m not paying any taxes yet but my wife is still working full time. Will we be subject to penalties?
- 37:46 Medicaid
- 38:47 Staying healthy
- 40:55 Q&A
- Having spent my life in critical care, 24-hour on call, and brain working constantly, how does one prepare for nothingness?
- Tips on an adult child who has a steady income. How do I guide him/her out of the house?
- I am in delayed credit in Social Security; does it make sense to wait a couple of years at 70 to start collecting when money is going to get trimmed down in Social Security payments?
- Do Roth IRA withdrawals count towards the IRMAA income calculation for Medicare premiums?
Transcription:
Paulene: Hello and welcome everyone. Thank you for joining us today for our How Not To Be Board in Retirement webinar. And today we have our host, Alison Allie, a senior financial advisor, certified financial planner. She earned her master’s degree in financial and tax planning at San Diego State University. Allison, how are you today?
Allison: Hi, good, how are you?
Paulene: I’m doing well. So we save and we save in our nest egg. And how do we avoid being bored in retirement?
Allison: How to not be bored. But really let’s focus on how to make the most of things. So first and foremost, let’s get into expectations. So the top five activities that people plan to pursue in retirement include travel. Spending time with family and friends, hobbies, gardening, which I feel like is a hobby, but maybe it’s its own category. I do have two clients that are master gardeners, so I think it’s its own thing, and I think we all know that fishing’s its own thing too, but in reality, once they’ve done some studies and looked at things, it doesn’t really seem like that’s what people are doing. When you look at the average hours per day spent in retirement. People spend most of their time actually watching tv, right? So like less than an hour spent relaxing and thinking maybe 45 minutes socializing. Less than an hour reading, but over four hours a day of watching tv. That’s what you wanna do. Great. But let’s talk about some ideas too. Instead, make the most stay fulfilled, stay active, things like that. There’s three different areas we’re gonna go through. We’re gonna start with creating a retirement identity. So first, how do you bridge the gap between work and retirement? You really want to take some time to focus, to think like, who am I gonna be without work?
A lot of people have their personal identity tied up in their job, who they kind of see themselves. Out in the world as, but that’s gonna change. And so who do you wanna be? Who will you be without work? How do you wanna spend time in retirement? And what are my and my spouse’s retirement goals? If you’re married, there’s two of you and you need to figure out what you guys wanna do together in retirement. So when we look at the various driving forces of personal identity, people like to connect to friends and community. People like to have a purpose, right? Living in a way that supports your authentic self. There’s a constant drive to learn and grow and wanting to discover your true self live with auth authenticity, as well as making sure you’re pursuing happiness, health, wellbeing, et cetera. So we’re gonna talk about different ideas for all of these things. So one way to start transitioning to a new self identity is kind of really figuring out how you identify, right? Are you a leader? You could pursue leadership positions in your church, a local community group or the clubs that you participate in. If you’re a physical fitness lover, maybe you wanna become a personal trainer or volunteer at the local gym, or at The Boys and Girls Club or the local Y. If you identify as a parent, maybe spending more time with your own children or your grandchildren, or again, becoming a big brother or a big sister, local children’s groups, things like that. If you’re an ocean enthusiast, maybe you wanna join an ocean conservation group or volunteer or work at a nearby surf shop or boat shop or something like that. Or if you’re adventurous, maybe travel is on the horizon for you, right? Or, picking up a new hobby. Again, gardening its own category, not just a hobby. I, again, so lots of people love that.
Finding Purpose in Retirement
So finding purpose in retirement, let’s get into it. What is your definition of success in retirement, right? You wanna start setting goals, starting with, well, what does that even look like to you? If you start to define your definition of success, that can help you provide for a sense of direction, can help you see the big picture, and it can also help you get control of your future, right?
It’s pretty common if you’ve been working for 25, 30 years and then suddenly that stops, but you’ve been, you know, you’re, that’s the goal, right? You’re getting to retirement. It stops, but it can feel like you’ve then lost control of your day, of your time, of the months. If you don’t know how to put things in place to make sure you can see the big picture of what you want it to look like. So, set goal priorities, which those can be related to a number of things, right? Do you have personal growth goals? Are there things you wanna do for your community? Is your, do you wanna maintain your health? Do you wanna improve your health? Are you passionate about giving back and making sure that you have goals in place around your finances, or you gotta pay for retirement, so you wanna make sure you know what that’s gonna look like, too SMART goal setting, right?
We’ve got this fun little acronym. SMART. Oh, it gives you a way to really track things. So the goals you set, you want them to be specific, right? The more specific, the better your plan and actionable steps toward achieving it will be. Having them be measurable, right? If you can measure your progress towards those goals, you’re gonna be more likely to actually achieve them, making sure that they’re achievable, right? Are they realistic? Can you actually get there, making sure they’re relevant? Choose a goal that aligns with your goals, values, and what’s actually important to you. And then time-bound, right? So what that means is giving yourself a timeline or a deadline to actually achieving the goal that you’re putting in place. Here’s an example. In this case, somebody’s goal is, Hey, I wanna make more friends, right? I don’t work anymore. I don’t have that social network outside of the office, so I wanna make more friends so that I can increase my socialization. So a specific example, join meetup groups. Pretty specific, right?
Measurable. Well, that’s easy to track whether you’ve joined them or not, right? Making it achievable. Maybe I just wanna do one additional thing a week. That’s a very achievable goal, and then it’s relevant, right? It aligns with that goal of making new friends and then making the time bound commitment. Hey, I wanna get this in within the next six months, right?
I wanna make more friends. I wanna do meetup groups. Once a week for the next six months, right? Put that in place. That’s gonna make it much more likely to actually achieve those goals. So you can apply this to anything, right? Whatever those goals are that you have in mind, you can put this process in place and it’s gonna help you make sure you get there.
Alright, then in addition to creating those goals, you wanna create structure, right? Design your days, fill them with the activities that are fulfilling and allow you to do the things you wanna do. So, you know, you have 24 hours in a day, right? So a certain number of those hours is going towards sleep. The rest of them, you can figure out what you wanna do, right?
Just ’cause you’re retired doesn’t mean you still don’t have the basics, right? You still have household tasks and errands and your own personal care, so you know that’s gonna take a certain number of hours of a day or the week, and then you can fill other time with fun and fulfillment, and then there’s gonna be some empty hours.
And so if you don’t want those to be that four and a half hours on average of watching tv. You can start to design those hours with the other things that are gonna hopefully bring you joy, fulfillment, happiness, et cetera. Alright? Staying socially engaged activities that bring you joy. That could be any number of things that helps you stay socially engaged and is fun.
Maybe you wanna start a lunch group, join a club, become of a member of your church or volunteer for a nonprofit organization. There’s obviously. A ton. More things that could be right, but that’s kind of what this is about. Like brainstorming, what do you wanna pursue in retirement that maybe you haven’t had time to do while you were working, but now it can fulfill multiple goals, continue learning.
So staying curious and learning something new. This has a lot of benefits and we’ll get to like mental health and wellbeing as well. But learning a new language is actually one of the top things you can do to stimulate brain function, traveling, learning about other cultures. Maybe you wanna attend a class in person or online.
You might wanna take. Part in a self-taught research or study, and you could also consider just open online courses. 62% of people age 65 and older consider the themselves lifelong learners. And there’s so much that you can learn about, like I said, and, like I said, languages and other cultures is, can have huge health benefit.
This is essentially what this says, right? The importance of lifelong learning. The more, open you are to learning, the more adaptable you’re gonna be. Obviously, technology changes over time, so those, the more learning you’re willing to do, the more easily you’ll be able to navigate those types of changes, right?
Enhanced self. Steam and confidence is another benefit of continued learning. When you set goals, learn new skills, and then actually achieve them, that can really boost your self-esteem. It also helps benefit you from a mental stimulation and cognitive health standpoint, right? Continued learning. Your concentration can stay better.
Memory re tension is better and enhance problem solving skills. And like I said, it is like, there’s studies that show that. Language learning has is one of the biggest things you can do for that mental stimulation in cognitive health and then personal fulfillment, right? New experiences looking forward to, and creating more goals to achieve is all part of that lifelong learning.
Sharing What You Know
Alright. Now that you’re doing all this lifelong learning, you can share what you’ve learned, right? This applies to not only what you’re doing while you’re working and how that can transition to helping share that knowledge in retirement, but if you’re learning new things along the way, right? Maybe you wanna. Serve on a board. Nonprofits, community organizations and schools tend to welcome the expertise and insight of a seasoned professional. You might wanna join a professional organization. Younger professionals often participate to network with those who have more experience. I mean, that’s what I did right out of my undergraduate was I joined the local financial planning association so that I could network with. You know, seasoned financial professionals and, you know, really learn more about the business. So if you are transitioning into retirement, but you have expertise, right? That can be a great way to help the next generation of whatever you did while you were working. Maybe you wanna be a consultant for a business to allow and help the organization to grow, but without the commitment of that full-time career, right?
Few hours a week, helping a business grow in addition, or you could teach, right? You could become a guest lecturer or a substitute teacher or anything that can share your knowledge of your career with students or those up and coming. okay. So connecting with your spouse. This is a big one because if you’re transitioning into retirement, you probably haven’t spent 24 hours a day together in a really long time.
And now if suddenly. 24 7. All day, every day. So how do you make that positive? How do you make sure you still like each other after 25 years of working? Well. Figuring out what you guys like to do, you’re probably, your interests have probably changed over time. So really reconnecting. Getting to know how you each want to have your retirement and how you can do that together.
Staying intentional when spending quality time together is huge. One thing for growth. Could be travel, right? Couples who travel together rate their relationship higher compared to those who don’t. Right? 86% of people that travel as a couple believe that their romance in their relationship is still alive, and 96% of couples that travel together report that they feel very close to one another, right?
It’s not easy to travel with somebody else. So making sure that you’re on the same page and you’re identifying, you know, what you both want to get out of those experiences. Is huge, but can be really satisfying. continued connecting right for mental health. Engage in brain workouts. There’s games like chess cards, Sudoku puzzles, working together as a team, help couples overcome.
Arguments disagreements better, right? Maybe you wanna start your own couples book club, read a book together, discuss it, spend that time together, maybe engage other couples in that process. Take dance lessons, right? For increased romance. Simple touch can increase feelings of gratitude. Or if you’re adventurous, go geocaching.
I dunno if you’ve heard of this, but there’s an app that you can download and you have GPS coordinates and it allows you to find hidden. Treasures all over the place, right? You follow coordinates, you read the clues, you go find these hidden things, you can then take it out. It’s usually a little package.
You can put your name on it, hide it back for the next person, and it’s a whole game you can play. But it allows you to kind of get out there and explore. And this literally exists in every city. It’s crazy, but kind of fun. So another thing that you can do. Alright. Maybe you wanna start a side hustle, right?
You wanna bring in a little income and maybe you wanna help support your kids or grandkids or just earn a little extra money for yourself. Various things that you might wanna consider, right? You could rent out a space in your home. Maybe you wanna rent a room, maybe you have an A DU you wanna rent out, or you could provide childcare, you could substitute, teach or tutor.
You could create a. An Etsy shop and sell goods. You could sell things that you already own. You could become a gig economy worker. There’s lots of things you could do on the side to generate a little bit of income and keep yourself busy, right and fulfilled. Think about getting a pet. This you should put a lot of thought into obviously, but there’s tons of benefits with getting a pet.
They provide physical and mental health benefits. They allow for socialization opportunities, right? Who doesn’t love the dog park or dog beach? they can reduce loneliness and isolation and they can boost home safety. That makes me laugh ’cause I have a dog and she does not boost our home safety. she is scared of everybody, so not a good guard dog, but.
Some probably are. So definitely, lots of benefits with getting a pet, but they obviously come with huge responsibilities. So, but worth it. and then continuing to create a growth mindset, right? Embrace challenges as learning opportunities, stay curious and seek out new opportunities and experiences, and then prioritize your physical and mental wellbeing as well as then.
Reflecting on that growth, right? If you’re pursuing these things, you wanna take time to sit back and say like, Hey, like, are these things actually benefiting me, right? Am I growing from the activities I’m pursuing? Do I feel fulfilled? am I getting bored of these things? Do I need to find new things to pursue?
All of those things are gonna allow you to continue to grow in retirement. Alright, before we get into planning for your lifestyle, I know that there’s that retirement lifestyle guide that we have that Paulene is gonna drop in the chat and, we might have some questions at this point, so why don’t we switch to that.
Questions and Answers
Paulene: One of them is, I may not be watching TV a lot, but I do find myself scrolling through my phone for long periods of time. How do I set boundaries with text so it doesn’t feel overwhelming?
Allison: Yeah. Doom scrolling. yeah, I feel like that’s probably common. It might even be more so than watching tv. yeah, you know, that’s a tough one because it’s hard to kind of sometimes turn away from scrolling on your phone, social media, whatever it is that you like to look through.
So I would set a time limit on that, right? Yeah, I think you can actually, you can probably set that on your phone, actually. But, more so than anything, give yourself a limit, right? Whether it’s an hour in the morning or an hour in the afternoon, and then. Make yourself set that phone down, get up, take a walk around the block, go do something else.
Like, you kind of just have to put those time limits in place so that you can get out and pursue the other things that you wanna do. That’d be my recommendation.
Paulene: I like that. I like that. I like that. I guess in, in addition to that technology portion, someone else asked, how can I use technology to improve my quality of life, both physically and mentally.
Allison: Yeah, well, there’s lots of apps nowadays that can help you track activity, right? If you have, there’s lots of apps, but Right, you can, download various like, activity trackers that you, and then you can set yourself goals like, Hey, I wanna walk for, you know, 20 minutes a day, three times a day.
And then if you set that on an app in your phone and actually make yourself. Report that then you’ve given yourself something to achieve by the end of each day. So that’s one way to use technology. You know, again, we’re talking about our phones, so you might, aside from social media, right? You can use those apps to really, increase your physical activity from a technology standpoint, from a mental wellbeing standpoint.
Similarly, there’s tons of games that you can download, right? Like, I know Wordle was the talk of the town a couple years ago, but that still exists, and there’s tons of little brain games you can play on your phone. So that’s a way to use technology to help mental stimulation, whether it’s a crossword puzzle, a Sudoku puzzle.
So that I think in combination with, activity trackers, through apps can help you boost both mental activity and physical activity.
Paulene: Yeah. I am guilty of using one of those New York Times games. Me and my husband go through it every night. Same. It’s fun. Majority of the time, if we don’t b about an answer, we have a contest on who can finish it faster and with less tries.
Love that. I usually win. another question is, what’s a safe pace to travel when you’re retired and expect to live 20 plus years? How do I make my money last and plan a travel as much as I physically can?
Allison: Yeah, I mean, that’s a tough one, right? ’cause it’s certainly gonna be person and situation specific.
and it also kind of depends on the kind of travel you wanna do, right? If somebody’s going to travel, more locally, or maybe you have an RV and you’re gonna like. Camp that’s not gonna be as expensive as somebody that wants to, you know, fly internationally and do more expensive type of travel.
So it kind of depends on the type of travel you wanna pursue and then frankly like what your financial situation allows for. So I don’t know that there’s a really, like a standard answer on an appropriate amount or a pace of travel. I will say people tend to, you know, have a little bit more. Energy and passion for traveling in the earlier years of retirement.
And then they tend to slow down a little bit in the later years. So that’s something to certainly factor in. But really the travel that you like and that you’re gonna wanna pursue, and then your own finances will probably dictate that more than anything else.
Paulene: I like it. we do have a few questions about whether or not this webinar will be recorded and it will be, we’ll send the replay a couple of days from now. Final question before you move forward. Someone mentioned about their adult son moving back in, unexpectedly and they’re retired, but their son needs financial help. How do you guide them through that time and they wanna help their son, but, what can they do to plan for it?
Allison: I mean, I get it right. Everybody wants to make sure their children are financially okay and moving back in is very common and happens quite a bit. And I think it’s important to like set expectations, right? So I get that everybody wants to help their kids, but again, you kind of have to take your own financial situation into account.
Like what can you afford to help them with? And then setting. Like goals for them to achieve, like a timeline for, and like how are they going to improve their financial situation so they’re not overly dependent on you. And then understanding really what you can afford to help with and have very, you know, like honest conversations, setting expectations, boundaries, timelines, et cetera, to make sure that both parties are able to.
Do the things they need and want, but nobody’s being overly burdened with the helping out.
Paulene: I love that. Boundaries and expectations. Yeah. All right, I’ll let you move on.
Planning For Your Lifestyle
Allison: All right, let’s get back into it. So, planning for your lifestyle. So we’re gonna kind of get back into the financial part of retirement, right?
I feel like we’ve been talking more about, you know, personal goals and fulfillment and joy and happiness and all that, which is great. So now how do you plan for all of that, right? So let’s talk about it. So. Sometimes people wanna pursue a more phased retirement, right? Instead of having a, an abrupt transition working full-time to suddenly retired.
some people find it better to ease in, right? Maybe they reduce their workload transition to gradual. Part-time work, reduction in hours or fully retire, but pursue a part-time job or just take on some seasonal or temporary work. So you’ve got some income coming in during this shift, but a little bit more flexibility.
You’re kind of getting a little taste of what retirement might feel like, but it’s not as drastic. This is one solution to help deal with the very real psychological shift from working full-time to retiring. How to budget, right? So again, let’s talk finances. So while you’re working, you’ve got income coming in, right?
But once you retire, those wages are gonna stop. So you really have to, before this, you have to take a look and say, well, what’s gonna be coming in retirement? And what do I think I’m gonna be spending? And what does that look like? So you wanna look at, Hey, do I have pension income? Do I have an annuity?
Do I have Social Security income? Are my investments generating income? Is there any other income? Do I have rental property? Whatever. So you want to add all those things up, and that’s gonna be that total monthly income. Then you wanna look at, well, what are your expenses? You have a. Essential expenses.
Maybe you still have a mortgage payment, you’ve got, you know, property taxes and utilities and medical insurance and the things you have to pay for. And then discretionary expenses. Well, what do you wanna do? Do you wanna travel? Do you wanna go? The list is endless, right? But do you wanna travel? Do you have to factor in?
How much shopping is there gonna be? Do we wanna go have fund date night or dinners out? So you wanna kind of take a look at what are the fixed costs, what are the discretionary costs? Add that up, and then your total income. Minus your total expenses is gonna give you your monthly cash flow. This is either gonna be positive or negative, or I guess it could be breaking even, but if it’s negative, right?
If you are gonna be spending more than what’s coming in from these sources, do you have enough assets built up to be able to sustain that shortfall? If it’s excess, right? If the money coming in is more than what you’re spending, what are you gonna do with that excess, right? Do you have a, do you have a goal or a plan to do something with those extra dollars that’s gonna continue to allow you to maintain that retirement lifestyle and take care of unforeseen things going forward?
Sequence of Returns Risk
One thing is paying attention to the sequence of return risk. So how to take strategic withdrawals to reduce the risk, right? So in this picture, what we’re looking at is somebody has, you know, certain number of assets. It looks like it’s about $450,000 in between that four and 500,000, and they’re planning to draw from that money over time.
And based on the amount they have and the amount they’re spending, it’s projected to last them through age 95. But what happens if there is a drop in the market early in retirement, right? There’s gonna be drops in the market. Market goes up and down over time, but when those drops happen, we don’t know ahead of time.
So what happens if that happens? Somebody retires at 65, but there’s a 50 50% drop in their portfolio at 67. Well, now that same withdrawal rate is gonna draw that asset. Amount down much faster than previously. If that shock or that drop happens a little bit later, in this case at age 80, still gonna draw down assets, but they’re still gonna last a little bit longer.
So before you retire, you really to minimize the risk of this, you wanna make sure of a couple of things. But first and foremost, is your portfolio balanced enough to sustain your withdrawal? Withdrawal needs, but with a buffer built in. And then in addition to that, is your portfolio allocated appropriately to weather the ups and downs in the stock market?
Because again, we don’t know when drops are gonna happen, but we know that they do happen. So if you can position your portfolio to be able to withstand those, then you can really minimize that sequence of return risk and still. Ideally have those assets last you As long as they’re gonna need to. Which is the other thing we don’t know, right?
We no one knows how long their money needs to last, but you want it to last as long as you do. Alright. Let’s talk the taxation of social Security. So the way that Social Security is tax. Is a little bit confusing in many ways and it actually didn’t change. So the recent tax bill that passed, they did not change the way that social security is taxed and here’s how it works.
So basically you take all your sources of income as well as half of your social security benefit, and that equals something called your provisional income. Okay, that provision, in this case, this person’s provisional income, in this example, they’re taking 32,000 from their IRA. They have another 12,000 of who knows what, maybe rental income, maybe dividends, whatever, and they have half of their social security benefit.
So in this case, their social security benefit is. 36,000, half of it of eight is 18,000. So you add all that together and their provisional income is $62,000. So what happens is that provisional income gets applied to this calculation. So in this situation, it’s somebody that’s married and they’re jointly filing.
And the first 32, so that provisional income again was 62,000. The first 32,000 is actually not taxed. Then the amount above 32,000, but below 44,000, so there’s $12,000 there, right? So 50% of that next 12,000 is taxed, and then the remaining amount, so the 62,000 minus 44,000, that’s 18,000. 85% of that 18,000 is subject to tax.
So zero of the first 32. Half of the 12 and 85% of the 18 means of their total provisional income of 62,000. Remember, their social security income was $36,000. Of that $36,000 of Social security income, 21,300 is what is actually subject to federal tax. This is important to understand because. As you’re working and building your assets leading towards retirement, where you build your assets is going to determine the taxation of those assets and therefore the taxation of your social security income.
Right? There’s three different pools that you can accumulate funds in. There’s a tax free pool that is municipal bonds, Roth IRAs. There’s a taxable pool that’s anything outside of a retirement account. So somebody might have individual stocks, bonds, real estate, mutual funds, anything not in a retirement account.
Is that taxable pool. And then you’ve got the tax deferred pool. This is your 4 0 1 your work sponsored plans, right? Your 4 0 1 Ks, 4 0 3 BS TSP IRAs. The list goes on, and each of these pools is taxed differently, right? So the Roth pool is 0% tax on withdrawals. So when you take money out of your Roth account, there’s no tax when you pull money out of the taxable pool, right?
Again, this is. Investments that aren’t in retirement accounts. What you’re subject to here is tax, but only on the growth of those dollars. And if you’ve held something for at least a year, anything that you sell, if it’s grown in value, you pay long-term capital gains tax just on that growth, and that’s a preferential tax treatment.
It can be anywhere from zero to 20. Most people pay about 15% long-term capital gains tax. And then we have this pool over here. This is where you’re gonna pay the highest tax rates. You’re gonna pay ordinary income tax on withdrawals from your IRAs, your 4 0 1 Ks, et cetera. In addition, your social security income, like we were just talking about that income.
Like we were just talking about is subject to tax. Now, again, not all of it. It’s a calculation done to determine how much of it is subject to tax, but if you have pension income, if you have annuity income, or just withdrawals, all of that is subject to ordinary income tax. In addition, once you hit 70 or three or 75, depending on when you are born, these dollars are subject to required minimum distributions.
And so they’re gonna make you take money outta this pool whether you need it or not. And so why it’s important to figure out where you should be continuing to accumulate your dollars is because it’s gonna factor in to this calculation, right? And come back to our provisional income withdrawals from that tax deferred pool IRAs, pension income, 4 0 1 Ks, those RMDs.
That’s all part of this calculation. Long-term capital gains, like if you’re realizing gains in that non-retirement pool, if you have rental income dividends, that’s part of this calculation. So the more, the higher these numbers are, the more of that social security income is going to end up subject to tax.
So that’s why making sure. You’re giving yourself control and flexibility by being very cognizant of where you’re accumulating. Accumulating your retirement dollars is so important because the more flexibility you have, the more money you have here, the more money you have here. That means the more choice you have in where to draw from to supplement that social security income, and if you’re pulling money from here.
That’s not part of that provisional income calculation. So it can help you keep the amount of your social security that’s subject to federal tax. It can help you keep that lower, right? So then more of that income is yours, tax free. You don’t have to take as much money from these other accounts. If you’re paying less total tax on your income, right?
If there’s, if you have less tax liability, then you don’t need as much other income to pay for your lifestyle to pay for that travel to help the kids, whatever it is that those goals are. I feel like there might be questions around this part. There usually are. So Paulene, if there’s questions, I can stop and take some.
Questions and Answers
Paulene: So for the provisional income and the IRA and other income for Social Security, is it for both spouses in your example? So if you go back to that Social Security slide. Oh, sorry.
Allison: Yeah. it is, so this provisional, well both are right, this gets added up to determine provisional income and then this table applies, on, it’s a, on the joint tax return.
So yes, it applies to the taxation of the social security income, no matter whose other income it is.
Paulene: So what percent of tax should I have taken out of my social security distribution? Or do they have a set percentage?
Allison: Yeah, that depends on how much other income you have. So, they, the I Social Security allows you to elect, I think there’s like four options of what you can choose for the amount of federal tax to have withheld.
You don’t have to have any. And if you then have taxes associated, like if you are gonna have part of your social security income subject to federal tax, you can either make estimated payments. or you could then elect to have withholding, but really the percentage that you should have withheld is gonna be dependent on, the other income and what tax bracket you ending up subject to.
Paulene: Cool. And, I wanted to take money from my Roth IRA, but I was told I would be taxed on the gains. Is this correct? And what would be the impact?
Allison: so you can take money from your Roth IRA and. There, there’s no tax on the gains as long as you satisfy a couple of rules. So you have to be at least age 59 and a half, and you have to have satisfied the five year clock.
So when you open an A Roth, the first dollar that gets into your Roth, that starts your five year clock, and any gains when you pull them out are completely tax free. As long as. You’ve started, the Roth has been open and has had money in it for at least five years, and you’re at least age 59 and a half.
But as long as you satisfy those two rules, withdrawals from your Roth, the amount you put in, plus the growth is completely tax free.
Paulene: Cool. so someone wants to clarify, so by delaying social security income and moving to the TSP to Roth keeping, what does that delay? does that keep it delaying? And so it minimizes tax on Social Security.
Allison: So I think that sounds like they might be talking about like a Roth conversion, moving money from this pool to this pool. And if they mention A TSP, you can do that with, well, in January you’ll be able to do that within, but it sounds like, and they can click say in the chat if this isn’t what they’re asking. But if you delay your Social Security income, and so therefore that income isn’t. Coming in and filling up your tax bracket and you decide to start doing Roth conversions, which is a way to build more money here. You can move money from this pool to this pool. Doing so does generate taxes, right?
Anytime you pull money out of here, whether it’s because you get to retirement and need it to live on, you get to 73 or 75 and are forced to take it out through those required minimum distributions. Or you decide to convert it. If you move it from here to here, the amount that you move, you do have to pay tax on in the year that you move it at the tax rate you’re subject to at that time.
But by doing so, right as you get the money out of here and into here, it means that by the time you are subject to those required minimum distributions, there’d be less in here. That is then subject to those distributions. So that is a strategy that could be implemented. And again, everybody’s situation’s different.
So whether or not you should do that really depends on your current tax situation and what it’s likely to look like in the future. But it can be a way to get money from here to here, reduce your future RMDs, and then if you put off Social Security right, by the time you take Social Security, if you’ve reduced your future RMDs, that could be a way to help reduce the amount of your Social Security that’s subject to federal tax. So yeah.
Paulene: This person replied back and she said, thank you. You hid it. So I thank you. You got that right on the nose, Alison. Someone else asked, I just started receiving Social Security and I’m not paying any taxes yet. My wife is still working full-time. Will we be subject to any penalties at the end of the year if we don’t withhold taxes from Social Security?
Allison: Maybe. So, to avoid underpayment penalties, you have to have had in the current year, 90% of your total tax liability withheld, or 110% of last year’s tax liability withheld. So if you end up under that, because you aren’t withholding tax from social security, you could end up subject to an underpayment penalty when you go to file.
So if you’re gonna be in that situation, then you might wanna elect withholding on the social security income or make estimated payments.
Paulene: That’s it for me. I think we’ll have more questions as we go through it, but thank you. Okay.
Medicaid
Allison: We’re gonna go quickly through Medicaid and Medicare, but basically Medicaid, because this can be part of retirement, but in reality, Medicaid is a, public welfare program.
It’s too. Assist people that don’t have a lot of income or assets have medical insurance. Not to be confused with Medicare, right? Medicare is the federal health insurance program for people ages 65 and older. Medicaid is Federal Medical Assistance Program for. Run by the states, right? Medicare is, federal Medicaid is run by the states like in, in California, where I am, it’s Medi-Cal, but that’s just the California’s Medicaid and it’s for low income individuals at any age, not just retirees.
Whereas Medicare is federal health insurance for eight people, age 65 and older. And there’s very specific, Parameters in place on who’s eligible to be covered under Medicaid, but again, it’s for low income individuals. Let’s talk staying healthy, because obviously staying healthy is important to maintaining the retirement lifestyle that you want, right?
So factoring in multiple things, nutrition, making sure you are eating a balanced diet. Limiting foods that raise blood pressure, staying active, which as we’ve talked about, lots of ways to track that being active is good for mental and physical health, and the more active you are, the. Typically the lower the chances of ailments, sickness, et cetera, right?
There’s a, just keep moving. That’s kind of the mantra. Just keep moving and that’s how you stay healthy. And then making sure your house is set up for safety, right? Lots of things can happen in your house and can become more common and more serious as you age. So making sure that you’re kind of taking steps to make sure that you can age and place gracefully in your home.
All right. Few quick tips for staying healthy, having a reason to get up every day, which I feel like what we’ve been talking about, right? Having purpose, making sure you’re looking for fulfillment, prioriti, prioritizing that mental and physical health. Learning something new. Have fun, laugh. So you’ve spent your whole life preparing and saving for retirement.
So. Now’s the time to enjoy it, right? Let’s not be bored. Let’s have a good time. Do the things you wanna do. And I think that’s it. So I know, like I said, we have that retirement lifestyle guide that we can provide to everybody, and I’m happy to take any more questions that we have at this time.
Paulene: If Allison hasn’t had a chance to answer your questions and you’re already a client of Pure, please contact your advisor directly. They can get you the answers you need. and if an advisor is not yet helping you, now’s the perfect time to schedule that free financial assessment. Learn what Pure is all about. We’ll look into your entire financial picture when you sign up for an assessment. One of our experienced financial professionals like Allison. We’ll dive deep to get into the insights and takeaways that you. Need for your financial freedom. This is a no cost, no obligation, one-on-one comprehensive financial assessment that’s tailored specifically to you.
Questions and Answers
We do have a few questions before we wrap this up, Alison. Having spent a life in critical care, 24-hour on-call, intense pressure, and brain working constantly. How does one deal with planning nothingness in retirement?
Allison: Well, do you want nothing? This, I dunno. I mean, I guess if you want nothing, this, you’ll be all right. yeah. I think this is kind of what this is all about, right? What do you want to do? What do you want that to look like? That’s certainly gotta be a huge transition, right? 24 hour shifts to, to maybe a more. Normal schedule, which would not be normal to you at all. So it’s probably gonna take some time to transition into that. But I would start with really, I don’t know, brainstorming, well, what, do you want to do? Like, what are the things you wanna pursue? Like, what have you not been able to do because of a schedule like that? Start with that, start mapping that out and, yeah, I bet it’ll take some time to, to kind of switch your way of life into. Like I said, a more normal schedule.
Paulene: Yeah. Every day’s a weekend. It’s a lot. And this is another question about an adult child. So tips on how to get an adult child, but this person has a steady income, and they want guidance on how to help them move.
Allison: How to get them outta your house.
Paulene: Yep.
Allison: And like I said, I think it comes down to communication, right? I think you have to sit down and talk about expectations, like give a concrete timeline to. I mean, Like do they wanna be on their own or are you making dinner for them every night? Maybe stop doing that.
Paulene: Yeah.
Allison: Have a transparent conversation.
Allison: I think it comes down to having open communication, really setting a specific timeline of what you require to happen, and then having. I mean, I don’t wanna say consequences ’cause they’re an adult. It’s not like you’re gonna ground them or something.
But really like, like actual implications if the steps aren’t met.
Paulene: I like that. This one’s regarding Social Security. I am delayed. I am in delayed credit with Social Security. Doesn’t make sense to wait a couple of years at 70 to start collecting when money will be trimmed down in the near future in Social Security payments.
Allison: Yeah, so we don’t actually know what’s gonna happen with Social Security, right? Obviously, the trajectory of Social Security is not great. Like it’s expected to run outta money and like. 12 years. So I’m certain there will be some changes to the program, but what that actually is gonna look like, no, we don’t actually know yet.
So whether you should wait or start now, you know, kind of depends on your, the rest of your situation. So it’s kind of hard to answer without knowing any more details. Like what are the other income sources that you have, what is your. You know, are you living on your assets? What does that look like? How long are they gonna last?
Your own health and longevity, all of those things would play into what would make the most sense for you on when to start that. And then as we actually learn what they’re gonna do toSocial Security, that would probably prompt those decisions as well.
Paulene: Awesome. someone else asked, do Roth IRA withdrawals count towards the Irma income calculation used for Medicare premiums?
Allison: Nope. So that’s the other thing. Why really paying attention to those different pools, because the withdrawals from the Roth don’t count towards how much of your Social Security tax. They don’t count towards that Irma, which determines your Medicare premiums. It does not in either of those calculations.
So more flexible controls. A number of things. Yeah,
Paulene: Pretty straightforward there. I will do a Roth conversion this year. Should I be making quarterly tax payments now to cover the conversion amount?
Allison: Probably. That will also depend on your personal situation and what the other withholding that you have, how much it is and how much of that other withholding or is. Is covering, like how much of that withholding is covering your income, right? if there’s gonna be a shortfall of the taxes paid and you’re gonna owe, depending on how much it could make sense instead to make estimated payments. Yeah.
Paulene: Cool. Someone, the person who asked that person who had been working 24 hour call, she said, loved your answer. What have I not been able to do because of the lifestyle? So, some reflective responses here. Yeah, that’s it from the questions. And Alison, thank you so much. I learned so much. Now I’m not bored anymore.
Allison: Good. Perfect.
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