4 things to know about retirement that no one is talking about that can improve your happiness,
but also your financial situation. And there's going to be a bonus at the end of this video
where I'm going to speak directly to what I've experienced with clients helping thousands of
people retire that helps to lead to more fulfillment and happiness in retirement.
Hi, I'm Troy Sharpe, CEO of Oak Harvest Financial Group, certified financial planner,
professional host of the Retirement Income Show and certified tax specialist. I often
say that I feel like I've lived through my 60s, my 70s, in my 80s, thousands of times.
And that's because we've seen what happens when we put a plan together for somebody who's 65
and they get to 75 and how things change, how the plan adjusts,
how dynamics within life changes. And going through that situation over the years has
given us perspective and insight that helps us in helping you plan for retirement today.
I want to talk to you about the 4 things
that most people aren't talking about in retirement, but you should be aware of.
Number 1-- and I hate to start with a morbid discussion here, but the truth of the matter is--
when 1 spouse passes away or you predecease your spouse, the surviving spouse goes from
the married filing jointly brackets to the single brackets. This is a big deal.
Okay, so what we have here is 3 columns: the Social Security Income, Total Taxes Paid,
and Before Tax Balance. This distribution strategy we're going to look at assumes what we call a
conventional wisdom strategy. This is, we let the IRAs defer. We take from the non-IRAs first.
67 and 63 year old couple; the husband is 67.
About $1.8 million total in IRAs and about $300,000 outside of the retirement accounts. Now,
in this example, they're going to defer Social Security until 70, and the spouse--
the wife will turn spousal benefits on once the husband turns his benefits on. Of course,
your situation may be completely different, but we want to really isolate the Social Security
and the tax impact of what happens when 1 spouse predeceases the other, because it's
a big deal. I have in this example the husband passing away at 82 and the wife living to 94.
If we come down here, we see the Social Security income. It gets up to about $59,000 between
required minimum distributions, other income that they have. Social Security taxes are about $41,000
a year. Now, this is the year of death right here. This is age 82. So if I scroll this over,
we're going to see age 82 about 2037. I'm going to come back and talk about these in a minute.
In the year of death, first and foremost, we see the taxes do not reduce. That's because when
the year you pass away, you still are allowed to file married filing jointly. The year after that,
your spouse goes into the single brackets. The Social Security reduces slightly here in the
year of death because it's a partial year Social Security. Now, here's what happens.
1 Social Security check goes away-- most of you understand that-- the income drops from
$59,000 to $42,000, about a $17,000 annual drop in income by losing one Social Security check. But as
we see here, the taxes go from $41,000 the year before death to $48,000 the year after death.
So we have about a $7,000 increase in taxes, but yet
a $17,000 reduction of income. So 17 and 7, we're looking at a $24,000 shift going from the married
filing jointly brackets to the single brackets. Now, I did a Roth conversion analysis here,
and this video is not about Roth conversions. If you've watched my videos,
you know I'm a big proponent of doing Roth conversions. I've been helping
clients with this for a very, very long time. While most people are telling you to defer those
retirement accounts, we want a strategy that intelligently, based on your circumstances,
is pulling out from the IRA and the non IRA, but also doing conversions to optimize the whole
retirement picture. This is very, very important. This is what a good advisor should be doing.
So, if I take the year of death in the year after here, there's nothing we can do about Social
Security. This is a Social Security column. This is the Tax column. This is the Balance column.
Nothing we can do about Social Security. One check goes away. There's no strategy there.
But a Roth conversion strategy that was put in place prior to this, of course, upon retirement.
This is what happens. The year before death, taxes are about $22,000 ($21,993), the year of
death $22,000, and the year after death $19,000. So the taxes actually go down in this scenario.
If we look over here, this is a summation. So $820,000 in total taxes paid over the course of
this example, the whole retirement and taxes paid. $5.4 (million) is the estimated ending balances
of these accounts. Compared to doing no Roth conversions, $1.29 million in total taxes paid
estimated, and an ending balance of $4 million. We have a difference in ending balances. $5.4
(million) to $4 (million), so it's an additional $1.4 (million) ending balance from doing the tax
strategy versus not doing the tax strategy. And total taxes paid from $1.29 (million)
to $820,000. Let's call it almost 500 grand in total taxes saved over the course of retirement.
That's not the purpose of this video. The main purpose was to talk about
the significant reduction in Social Security income, the $17,000 loss of income, because
1 spouse passes away. But how in the non Roth conversion example, the taxes actually went up?
Just be aware everyone's situation is different,
but know that when 1 spouse passes away that year, the last year, you can file
married (filing jointly brackets) and then the next year you go into the single brackets. Now,
the exception to this is if you have a dependent child under the age of I think it's 16 or 18,
you get 2 years to file married filing jointly. So there is that exception.
Okay.
Now, number 2. I don't want to just talk about the financial aspect of retirement and things that
people aren't talking about and you may not know. I want to talk about the psychological aspect.
Because over years of helping people retire and putting these plans together, we've noticed many,
many things-- not just on the financial side-- but on the psychological side. This is a big one.
The psychological shift from saving to spending. Think about it. You go
your entire life. You're saving, saving, saving, saving, saving. All of a sudden,
it's almost like a line of demarcation. The paycheck stops. You enter into the retirement
phase, and now you're no longer saving. You have to take everything that you've saved and come up
with your own plan for spending that money. You have to determine your taxes, your spending,
when to take Social Security, and how all the rest of it ties together. But psychologically,
we're shifting from a savings mode to a spending mode. And what we've seen over the years
is a lot of times-- especially people who come to us, if they've been retired for a
little while and all they have is an investment account. They don't have a real plan. They're not
connected to their money. And what this does is it causes, for a lot of people,
a fear of running out of money down the road. So they pinch pennies today. They don't spend
as much as they could, otherwise,because they're not connected to their money.
So a financial plan, a real financial plan.. I'm not talking about one of those,
kind of, we call it antiquated because we do all our financial plans digitally. But I'm not talking
about one of those kinds of plans you get. You go to see an advisor. They give you a paper plan and
it has your asset allocation and a bunch of other things on it. That's not a plan.
I'm talking about a real plan that answers the questions. Do you have enough?
Can you retire? Can you stay retired? How much income to take? How much income can
you take but also maintain your standard of living when considering inflation?
How to pay less tax? And of course, if something happens to you, will your spouse be okay?
Those are the big questions the financial plan should answer. Before I continue with this video,
I just want to take one quick minute to let you guys know that we have been named by INC 5000
one of the fastest growing private companies in America. So if you look at the website here,
we have the logo up and it's something that, for me, speaks to not only our
clients-- I want to thank you very, very much-- but it speaks to the reason people become clients
at Oak Harvest. It’s because it's not just about the investment management in retirement.
You have to have the investment management plan working with the income plan, the tax plan, health
care plan and the estate plan, bringing it all together. Our retirement 360 process has helped us
achieve this award. It's based on revenue growth from 2017 through 2020. And the fact that we're
now one of the 5000 fastest growing companies in America, I couldn't be more proud of everyone here
that works day in and day out to help manage the investments, put the plan together, manage the
taxation strategies, and bring that together for you, our clients. So thank you very much.
Number 3, IRMAA. IRMAA is a big deal. So IRMAA stands for Income Related Monthly Adjustment
Amount. Based on your modified adjusted gross income, which is all of your income
with your tax free income added back on top, plus certain deductions,
it's your modified adjusted gross income. This can increase your Medicare premiums.
Here is the 2021 IRMAA brackets for Medicare Part B and Part D-- single tax return, married
tax return. Now going back to the married filing jointly, going into the single brackets when
one spouse passes away, this also can impact the Medicare Premiums in a significant way. If you're
single $88,000 or less, you pay the $148.50 for your Medicare Part B premium. If you're married,
$176,000 or less, you pay the $148(.50). But you can see… By the way, this is per spouse.
So $148.50 per month per spouse. As your income increases, whether you're single or married,
your monthly part B premium also increases because of IRMAA. Now, I know I'm going to
get comments that someone's going to say, “Troy, well, you know, no one should be complaining
if they have two hundred thousand dollars of retirement income.” Well, our average client
has a net worth somewhere between $2-3 million. And that's really who I'm talking about here.
Now, over time, with poor planning, poor distribution planning, especially your IRA
balances are going to grow a significant sum of money. And once required minimum distributions
start, it can be very easy-- because you add the Ahmadi's on top of Social Security,
on top of any of your investment income-- it's very easy to get into these range if you have
an IRA that's worth a million dollars, $1.5 million, $2 million, $3 million.
So understand that these numbers look big, and you may only spend $80,000, $90,000,
a $100,000 a year, but with poor planning, you can very easily find yourself in these brackets
later in life if you've done a good job saving and investing over the course of your career.
It's not just Part B. The increases to Part D are less, but we have the same thresholds.
And here are the Part D premium increases.
Now, what's the solution for this? Well, there's one solution
that I want you to be aware of, and that is many of you will be retiring.
Let's say you retire at 66 and you're on Medicare. You make $150,000
a year. You have Social Security, whatever it is. If you fall into those thresholds,
the Social Security Administration has a Medicare income related monthly adjustment amount,
life changing event form. You can just Google this and you can find it. And what that does is they
know that you will not have the same income as you did 2 years prior. Why 2 years prior? Because
when Medicare calculates your surcharges, they're looking at your tax return from 2 years prior.
So it's 2021 now. Your Medicare premiums-- if you're in the IRMAA categories-- are based on your
2019 tax return. Your next year Medicare premiums will be based on your 2020 tax return. So if you
lose your income, if you retire, if you lose a spouse and income changes, you can let Medicare
know that even though 2 years ago you were in this bracket, now you're not going to be because
of this life changing event. And for that year, you have to report what your estimated income will
be for the upcoming year. And then you will not go into that bracket, that Medicare IRMAA surcharge.
Now, once you file your tax return and they reconcile what you told them your income would be
versus what it actually was in a couple of years, if you were incorrect or mistaken, then they
will send you a bill. You will have to pay back taxes or back payments based on the difference.
So this is just for a life changing event, one time. Social Security is going to look
at your tax return every single year, and it's based on two years prior. But if your income in
future years then exceeds the thresholds, you will again have to pay IRMAA surcharges.This
is just for a life changing event. But most people aren't talking about this. Most people do not know
about this form, and this could possibly help you keep your Medicare premiums down.
Number 4. Once you retire, as you can see here, you have to psychologically adjust because
you've probably been going to work, you and your spouse possibly for 35, 40, maybe 45 years. And if
you both retire or what are you retiring or whatever that situation may be, you have to
psychologically prepare to get ready to spend a lot more time with your significant other.
Now, for some of you, this is going to be no big deal. For others, this is going to
be a big challenge. I don't have a solution for this, unfortunately. One thing that I have seen,
though, over time is that couples that go to marriage counseling upon retirement-- we've
had some people do this before in the past just to learn how to communicate with one another better--
can make for a little bit of a more happier time together, maybe if things aren't perfect
right now. But what I want you to take away from this is the psychological preparation.
Talk to your spouse, talk to your friends, talk to your neighbors,
talk to your therapist, talk to whomever that can help you understand how to
improve your marriage. Okay? This isn't a marriage counseling channel,
but it is something that I've seen over the years that I want to make sure you prepare for it.
Now we're going to move into the bonus. And again,
it's a psychological aspect, but this is really, really important.
How to find fulfillment and happiness in retirement?
Okay, so this is just, again, my experience, because when we're doing retirement planning,
we really, really get to know our clients. I don't think you can truly do the best job unless you
understand who it is that you're working with. It's not just about the investment portfolio.
Our job as retirement planners is to put that whole puzzle together. And in order to understand
what that puzzle looks like, if you think about an actual puzzle, you need to know what the box,
the picture on the box, looks like. Once you know what the picture on the box looks like, that's
going to help you put the little pieces together. You start with the edges, the corners, et cetera.
That's what retirement planning is with our retirement 360 process. The
investment part needs to work with the income generation, needs to work with the taxes,
needs to work with the health care plan and the estate plan.
When it comes to finding happiness and fulfillment, if we really, truly understand you,
this is what we've learned over the years, that plan is much better. Of course, on the financial
side of things, you don't have to worry about it. The market's going down, the market's going up,
et cetera. But what you should focus on from my experience is try to identify what are the things
that you did during your working years that gave you true happiness and true fulfillment.
We all have the basic emotional need to be fulfilled to find happiness, at least to the
greatest extent possible. Maybe you mentor younger employees and help them develop and grow. Maybe it
was working with the machinery or working with your hands on things. Understand the emotional
fulfillment that that gave you and why that made you happy and happy to go to work, and then try
to identify something similar that you can do that fulfills that same emotional need and is similar
to what you were doing in work, but now you're doing it as a passion or a hobby in retirement.
Keep that in mind. What made you happy during work? What were you actually doing? What did you
enjoy doing? And how can that transfer over to the hobbies and the passions and how we spend our time
as an individual or with your spouse in retirement? And if you can do that,
that can help lead towards more fulfillment and happiness in retirement, from my experience
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