Dinner Seminars for retirement

[Allen Trent]

Good stuff @Allen Trent

Do you have graphs showing tax paid as a percent of income by age? It's not so much WHAT you pay as it is how much you have LEFT OVER after tax.

I dont believe I have seen that specific graph, but it likely would be skewed a bit considering 65-75% of people over 65 dont even pay federal income taxes or even have to file a tax return. That stat alone shows that most seniors should have never converted a Roth IRA, unless something showed they will for sure be in higher tax brackets like a large pension or parents with huge IRA/NQ annuity balances they will inherit.

That all may change someday, but politicians love senior voters, so raising a tax that most seniors dont even realize they dont actually pay is politically suicide. Romney got in huge trouble for even stating the truth that 47% of the US population pays no federal income taxes.

https://squaredawayblog.bc.edu/squared-away/why-most-elderly-pay-no-federal-tax/

I coached a Pastor last year on how to take Roth withdrawals during his last 3 years of working so that he could turn around & redeposit into Traditional IRA for he & his wife so they could tax deduct during their working years. The reason is they will live on SS of about 40k & about 10k pension. They will still be 10-13k below even having to file a tax return in retirement because the standard deduction will wipe away their taxable income. So, they got $36000 worth of tax deductions to use their Roth money to make Trad IRA contributions. It equated to about $5500 in tax refunds to them. He had converted to the Roth about 8 years ago when both he & his wife were working.

 

[somarco]

I coached a Pastor last year on how to take Roth withdrawals during his last 3 years of working so that he could turn around & redeposit into Traditional IRA for he & his wife so they could tax deduct during their working years. The reason is they will live on SS of about 40k & about 10k pension. They will still be 10-13k below even having to file a tax return in retirement because the standard deduction will wipe away their taxable income. So, they got $36000 worth of tax deductions to use their Roth money to make Trad IRA contributions. It equated to about $5500 in tax refunds to them. He had converted to the Roth about 8 years ago when both he & his wife were working.

More good advice.

Too many agents are more focused on SELLING something (or anything) vs helping folks fix a problem, often one they did not realize they had. I am a firm believer in educating folks on the BENEFIT they receive from the products I offer as well as my advice.

Sometimes I can fix their problems but make $0, and that's OK. You would be surprised how much "thank you" work I have done over the years that came back as referrals.

 

[scagnt83]

But still, if you're living on $100K+, what happens on your 65th birthday that suddenly makes $60K "a good living?" And if you are going to have just $60K, would you rather have it as $60K taxable, or $60K tax-exempt.

Too many financial advisors justify their fees by simply saying "well you'll be in a lower tax bracket" and the sheeple nod and follow.

I agree that there is a lot of "general" ideas advisors will give as advice on that do not really play out correctly in real life.


But if you need the exact same amount during retirement as you did while working... it means you werent saving anything meaningful while working...

Someone making $100k might not be ok with just $60k... but most are probably good with $70k.

Dont forget most people are getting $18k-$20k from social security. Then take away retirement savings ($5k-$10k) & DI ($2k-$5k). And you are easily in the 80% or under range.

Everyone is in a different situation with a different plan. But generally speaking, a 70%-80% replacement rate is very realistic for many situations.

 

[DayTimer]

But generally speaking, a 70%-80% replacement rate is very realistic for many situations.

And I agree, if we are using Social Security to bridge the gap.

But, just a ballpark, what percentage of American households are even reaching that?

And last year Medicare premiums were deducted from Social Security proceeds at a rate of $134 per month, weren't they? And this year it is $143 per month isn't it? And do you believe that Medicare premiums are going to be even higher in the future? And if so, might they not be much higher? And won't that cut the spendable cash contribution retirees can expect from Social Security?

 

[Allen Trent]

And this year it is $143 per month isn't it?

Correct. And avg individual SS check is about 17k & avg couple is about 30k. So, Medicare Part B is about 10% take away. Like mentioned by scagnt83, 100k in pre-retirement after FICA, 401k, benefit, fed & state deductions likely felt alot more like 70-80k.

75k gross with 30k from SS, even if other 45k was all taxable qualified IRA deductions will feel like 65 -70k. If they could have found a way to have half the 45k come from tax free life, Roth, Muni bond income the they would owe almost no tax on a 75k annual income as standard deductions would wipe out almost all the taxable IRA withdrawals. Literally like a 500-800 tax bill on 75k income.

The same 75k income if from wages before retirement would have about 11-13k in FICA, federal & state taxes. If they decided to convert IRA to Roth of 100k, that tax bill would likely jump to 35-40k that year.

 

[DayTimer]

75k gross with 30k from SS, even if other 45k was all taxable qualified IRA deductions will feel like 65 -70k.

I understand, and again, this is a new direction for me so I hope not to come across like I think I "know it all" because clearly I do not.

That being said, I can't help but feel that we are selling folks short by aiming at providing them with just 70-80% replacement at retirement, especially as I do not see any inflation buffer (if I am missing this please feel free to correct me). And so what I fear is that if someone retires at 65 and is dead by 72, no problem. But if someone retires at 65 and lives to 92, then things could go from comfortable to quite uncomfortable.

For example, I've been in my home for 20 years. During that time my school taxes have increased from $191.66/month to 503.22/month, and that does not include our county and township taxes. My parents property taxes were $37/month when they bought their home in 1965 and are not close to $700/month. Even though my dad's golfing days are behind him, the governments continue to find new and novel ways to spend his money.

Most folks aren't retiring with renewal income like us. And I have come to know a number of insurance agents who are "retired" but still write a substantial amount of new business each year without "working."

It may not be possible for all folks, but I believe that if it is possible to help them plan for an after tax spendable cash income in retirement that is equal to or greater than they are receiving while working, then that should be our goal.

 

[KRobby]

You'll go broke if starting out and your target market includes "most Americans".

 

[Allen Trent]

I understand, and again, this is a new direction for me so I hope not to come across like I think I "know it all" because clearly I do not.

That being said, I can't help but feel that we are selling folks short by aiming at providing them with just 70-80% replacement at retirement, especially as I do not see any inflation buffer (if I am missing this please feel free to correct me). And so what I fear is that if someone retires at 65 and is dead by 72, no problem. But if someone retires at 65 and lives to 92, then things could go from comfortable to quite uncomfortable.

For example, I've been in my home for 20 years. During that time my school taxes have increased from $191.66/month to 503.22/month, and that does not include our county and township taxes. My parents property taxes were $37/month when they bought their home in 1965 and are not close to $700/month. Even though my dad's golfing days are behind him, the governments continue to find new and novel ways to spend his money.

Most folks aren't retiring with renewal income like us. And I have come to know a number of insurance agents who are "retired" but still write a substantial amount of new business each year without "working."

It may not be possible for all folks, but I believe that if it is possible to help them plan for an after tax spendable cash income in retirement that is equal to or greater than they are receiving while working, then that should be our goal.

100% agree with you that we should encourage more & more savings, delaying retirement, delay taking SS to get the guaranteed 6-8% return for each year SS is delayed.

I guess most of my point was about the advice to all the people already in retirement or near retirement and the fact that it currently takes a very high post retirement income to get into anything other than the low end tax brackets.

Definitely encouraging more contributions to 401k & tax diversification with Roth & life deposits is better in my mind than lump sum conversions of Traditional to Roth.

Here is a great tax calculator I have found to be a simple way to ballpark some estimations for impact of accelerating or delaying some distributions from qualified plans or NQ annuity

IRS & State Tax Calculator || 2005 -- 2020

 

[LostDollar]

I coached a Pastor last year on how to take Roth withdrawals during his last 3 years of working so that he could turn around & redeposit into Traditional IRA for he & his wife so they could tax deduct during their working years. The reason is they will live on SS of about 40k & about 10k pension. They will still be 10-13k below even having to file a tax return in retirement because the standard deduction will wipe away their taxable income. So, they got $36000 worth of tax deductions to use their Roth money to make Trad IRA contributions. It equated to about $5500 in tax refunds to them. He had converted to the Roth about 8 years ago when both he & his wife were working.

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Everyone is in a different situation with a different plan.

I just recently learned about spouse Roth Ira's.

With the new laws, can a person beyond age 72 create and contribute to a spouse Traditional IRA, and then take distributions in following years according to either Table II or Table III, depending on which table applies to the taxpayers' marriage?

 

[Allen Trent]

With the new laws, can a person beyond age 72 create and contribute to a spouse Traditional IRA, and then take distributions in following years according to either Table II or Table III, depending on which table applies to the taxpayers' marriage?

I see no reason they can't nor anything in SECURE ACT that is changing that.
Your basic example could have already been done for a 69 year old to allow a non working spouse to contribute to a Traditional IRA based on working spouse earned income. Only thing SECURE ACT appears to have changed is removing the max age of 70 for Traditional IRA contributions.

Note there are limits on MAGI to be able to deduct contributions if a participant in employer plan, etc and must have earned W2 or Sched C income. Also best for client to confirm at tax filing they are eligible before making the contribution