Page 21 - Investment Advisor June 2021

[So] you may want to increase your That’s absolutely right. Traditionally What about Social Security — do you
taxable income, in some cases, to fill we’ve had wealth management, which is see changes in the future?
up a lower tax bracket, with the idea focused on growing wealth, and it’s only I’ve been waiting for the new Social
that in the future, you’ll be able to avoid been in the last 10 or 15 years that there’s Security Trustees’ report to come out
going into a higher tax bracket. Then really this appreciation that retirement [as of mid-May]. So we haven’t been
you spend [a blend] from taxable and is different. And that mountain climbing able to see what the Social Security
tax-deferred accounts in the early years analogy is used commonly, that it’s easi- Administration believes the impact of
to get up to the target. And then later er to climb up to the top of the mountain COVID will be. But as of the 2020
when the taxable account runs out, you than it is to climb back down. Like with report, they were expecting the trust
can spend a blend of tax-deferred and Mount Everest, most of the accidents fund to last till 2035. There’s reports
tax-free Roth accounts. happen when people are going down, [that] probably is going to [run out
You can even do Roth conversions not when they’re going up. even earlier].
as part of that. It’s called the And a big factor is lower
Social Security tax torpedo. If I like the idea of tax-efficient interest rates. We’re going to
your income falls in the range have less interest on the trust
where if you have just $1 of spending strategies. The fund assets. That’s going to
taxable income [more], that be the most important factor,
can also cause you to have to basic starting point is about not so much unemployment,
pay tax on another 85 cents spending taxable assets, which kind of has a mixed
of a Social Security dollar. So impact, but mainly the low
you might be in the 22% tax then tax-deferred, then tax- interest rates.
bracket, but really your mar-
ginal tax rate is over 40%. free. But what you’re really How should a near-retiree
That’s what you really want to deal with that?
be focused on. trying to do is tax bracket For one thing, Social Security
Also focus on Medicare: won’t disappear. If nothing’s
If you have $1 too much, management. done [by Congress], benefits
depending on which thresh- may have to be cut across the
old you’re at, you might have to pay And it applies to retirement, where board by 20% to 25% to be aligned with
another $800 in Medicare premiums as before we thought, just like people think the incoming payroll taxes. So I don’t
a single person just because you’ve hit the goal of climbing the mountain is to think people should change their claim-
that one extra dollar around $87,000, make it to the top, well, the goal of retire- ing strategies.
somewhere in that ballpark, this year. ment planning is to get to that number Social Security is a reliable income
Try to avoid that. That’s where you where you have enough assets to retire. asset where you’re not having to rely
don’t want to waste tax space. If you’re But no, the reality is it’s getting down the on the stock market to support your
only in the 10% tax bracket, you might mountain. It’s not outliving your assets spending. If you have a particular
want to, at the very least, potentially and meeting your retirement goals. spending goal that you want to sup-
fill up 12%. That just gets you better That’s more complicated than just hit- port reliably without market risk,
positioned later in life when you have ting that wealth target at the beginning. and feel that if the Social Security
Social Security. And then when you have Like at The American College, benefit goes down, you’d like to fill
RMDs, you don’t have as much in your for example, we started the RICP that gap [it could be] an annuity
IRA by that time. You’re better able to [Retirement Income Certified or the 10-year payment option on a
manage avoiding taxes. Professional] designation for advisors reverse mortgage — something not
in 2012. It started from this recognition. having additional stock market expo-
We just spoke with (York University They had a conference to just discuss sure necessarily.
professor) Moshe Milevsky, who what’s different about retirement. And
discussed why decumulation advising what should a retirement advisor know? Ginger Szala is managing editor of
should cost more. That is, it is more What do they do post-retirement, not Investment Advisor Group. She can be
expensive going down than going up? pre-retirement. reached at [email protected].

JUNE 2021 INVESTMENT ADVISOR 19