Page 20 - Investment Advisor June 2021

TAX TIME

By Ginger Szala

Wade Pfau Makes Case for Raising Top

Social Security Claiming Age to 72

Letting retirees further delay claiming, while allowing benefits to rise,

would be more helpful than delaying RMDs, he tells Investment Advisor.

f the Securing a Strong Retirement
Act of 2021 is eventually passed
Iby Congress and enacted into law,
the age at which required minimum
distributions from retirement accounts
begin will be raised gradually to 75
from 72.
But perhaps a better idea would be
to raise the maximum age for claim-
ing Social Security from 70 to 72, and
to extend delayed retirement credits —
which increase benefits by 8% for every
year a retiree waits to claim — to that
age. That, contends Wade Pfau, may be
a better way to give retirees a chance to
spend down their IRAs and make stra-
tegic Roth conversions to help reduce
taxes on their Social Security benefits.
Pfau is professor of retirement
income in the Ph.D. in Financial and pretty well lined up. You could have this Then what Congress is doing is
Retirement Planning program at the period, if you retired before 70, [to do] counterintuitive?
American College of Financial Services. some strategic Roth conversions that Yeah, if you could wait till later to start
He is a certified financial analyst and would help you to lower subsequent Social Security and be rewarded for
retirement income certified professional taxes on your Social Security benefit. it through delayed credits, that would
and runs the RICP program for the col- With the way Social Security taxation just give you more time to engage in tax
lege. We spoke with him recently about works, once people hit 70 and turn on strategies so that when RMDs begin and
various retirement issues and here are Social Security, delaying their RMD age when Social Security begins, you’re in
excerpts of our conversation: later may not have much impact. I don’t even better shape at that point. You’ve
know what the motivation of delaying gotten down the value of your IRAs
Investment Advisor: In a podcast the RMD age would be. [etc.] so that the RMDs are not going to
recently, you mentioned another option But if you’re trying to help retirees be very large.
rather than Congress pushing the RMD more, let them have further deferral on
age to 75. Could you discuss? Social Security to be more aligned with You’re working on a new book on
Wade Pfau: If you’re doing tax-efficient them being able to do more strategic strategies on spending down in
retirement planning, unless you’re not Roth conversions and [the like] before retirement?
spending anything in retirement, gen- Social Security begins. Reward them I like the idea of tax-efficient spending
erally the RMDs won’t be binding on by [offering] additional delay credits on strategies. The basic starting point is about
you. Likely you’ll want to spend more Social Security. [Pushing the RMD back spending taxable assets, then tax-deferred,
than your RMD anyway. When the RMD to 75] is only affecting people with a lot then tax-free. But what you’re really trying
age was 70, it and Social Security were of assets anyway. to do is tax bracket management.

18 INVESTMENT ADVISOR JUNE 2021 | ThinkAdvisor.com