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Navigating Your Streams of Income in Retirement

| November 06, 2020
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Financial security does not just happen. No matter how you define “financial security”, many years of careful financial planning, sacrificing to meet certain financial goals, and dedicated commitment are essential pieces to delivering peace of mind. You have worked hard to save and prepare for retirement. You should reap the fruits of your labor. But what do you do when you are retired? Perhaps, you stop receiving a regular paycheck and wonder how long your current savings may last. When should you start collecting Social Security Income? From where should I take additional funds for my expenses? These are just a couple of the important questions to consider. To help, we’ve created a Q&A to prepare you to navigate your streams of income in retirement.

What types of retirement income will I have?

Before understanding the potential streams of income you may have in retirement, you must recognize your retirement expenses. These expenses may vary depending on your lifestyle, healthcare, and other personal choices, just to name a few. When you have a solid estimate of how much your expenses may be in retirement, you need to determine whether your income in retirement may be enough to cover them. Retirement income sources may include Social Security retirement benefits, defined-benefit pension plans, retirement savings in qualified accounts, and savings in after-tax brokerage accounts. Knowing the approximate values of each of these potential sources of income may help understand and calculate if you might have enough saved for retirement.

Required Minimum Distributions: What should I consider?

When you turn 72, you must start withdrawing a specific amount in the form of a Required Minimum Distribution (RMD) from your tax-deferred retirement accounts, such as IRA or 401(k) plans. Take note, if you withdraw less than the RMD amount by the designated deadline (typically December 31), you may be penalized and owe the IRS an excise tax of 50% of the full amount.* Consolidating your retirement accounts into as few accounts as possible helps to mitigate any RMD errors and shortfalls.

Delaying your first RMD: You must take your RMD by December 31 of each year. However, the IRS allows you to defer your first RMD to as late as April 1 of the following calendar year. However, you must also take out a second distribution by December 31 of that same year. Delaying may not be in your best interest because you may receive double your distribution, which could possibly increase your taxable income, and may even push you into a higher federal income tax bracket.

Sometimes, it makes sense to start taking from your qualified accounts even before you hit age 72, depending on your tax situation. If you have minimal supplementary income, taking early distributions may not be a big tax event. In addition, you could potentially lower your taxes in future years, as your RMD at age 72 may be lower due to a lower account balance.

*Under the Coronavirus Aid, Relief and Economic Security Act (CARES), the RMD rule was suspended in 2020. (

What are the Medicare income thresholds where surcharges would increase?

The standard Part B (Medical Insurance) premium amount for 2020 is $144.60 for those who file individual tax returns of $87,000 or less and joint tax returns of $174,000 or less. The premium amount may increase depending on your tax return.

Below lists the charge you would pay, depending on your tax return.

Factor in this surcharge when you are considering withdrawing funds from your IRA or converting IRA funds to a Roth IRA. Both scenarios may increase your yearly income and could push you into a higher monthly surcharge bracket.

When should I take Social Security?

You can begin receiving your Social Security retirement benefits as early as age 62, potentially collecting your benefits for a longer period. This option may be advantageous to those who may need extra income, but keep in mind your benefits could be taxed heavily if you are still earning other income. In addition, the longer you wait to collect, the better – your Social Security benefits increase 8% per year for every year that you delay, up to age 70. Every situation is different, but if you have health on your side and you don’t need the extra income, it’s generally a good idea to wait as long as you can to start collecting Social Security.

At Private Capital Group, we know that planning for retirement may take many years to craft a “just right” strategy for you. Frequently revisiting and reassessing your retirement plans with your financial advisor may put you and your family in the best possible financial situation. You have worked hard to prepare yourself for life in retirement. Let us help you reach financial security and feel peace of mind.

We hope you and your families are safe and well during this time and we look forward to speaking with you soon.

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