Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

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FXDXontherun
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Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by FXDXontherun »

My wife and I retired at 60 y/o and are both now 65. I have been doing a lot of research on social security claiming strategy's, (was planning on us both taking at 66.4 FRA), Roth Conversions, (did one last year and again this year), Tax, RMD and IRMAA strategy. I've been pretty much a buy and hold investor, (with 88% of a $2M portfolio at VG), for most of my adult life and have concluded that building wealth before retirement is much easier than managing it properly after retirement.

Right now I think I can manage these things If I was sure what to look for but if I were to precede my wife in death I know she would need someone to manage her portfolio so going to an investment advisor may be in our future anyway.

Having said that, what would be your opinions on the most important things to be sure you get right in retirement? I have searched for some online resources to help retirees themselves manage these various components but have found nothing but investment brokers that want to manage my money.

Thanks in advance for any responses.
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FiveK
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by FiveK »

Start with https://opensocialsecurity.com/ as a guide to when each of you should start SS.

The Roth IRA conversion wiki discusses considerations for that issue.

Getting either of the above "approximately correct" is plenty good enough, and would be a good foundation for whatever other choices needed.
Silk McCue
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by Silk McCue »

Mark Zoril with planvisionmn.com can help with everything you are describing here and be a resource for your wife should you predecease her. A number of folks here use him. Don’t let the fact that he is dirt cheap throw you. $239 for the first year and then $8 a month thereafter.

I signed up with him a about 3 years ago for a second look at our planned retirement at ages 60/62 at the start of 2021. One of my primary drivers in going with him was to have someone my wife could trust should I predecease her.

Cheers
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celia
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by celia »

The most important thing to get right is to understand how your future RMDs will impact your taxes. If you together have over a million in tax-deferred, you should consider if you should be doing larger Roth conversions each year. I look at this as leveling out our Taxable Income over our remaining years (and our income taxes). Some people have low taxes in their early retirement years only to be surprised their taxes are much higher after RMDs start at 72. By that time, there’s not much they can do about it since they used their younger years delaying the taxes.

To help you figure out how much to convert each year, my suggestion is to start with the “big picture”. Read this thread and follow the links I offer there, then return to continue reading more of that thread.


To have the most room in your tax brackets for Roth conversions each year, that brings me to the second most important thing to consider which is delaying SS until 70 for the person who will have the highest monthly benefit. You also get an extra 8% for each year you delay SS past your Full Retirement Age. Where else can you get a guaranteed growth like that? SS is also adjusted for inflation each year. The survivor of the two of you will then have the most secure income stream I can think of after one of you dies for the rest of their life,

If you get these two things right, managing the assets will be minor in comparison.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
secondcor521
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by secondcor521 »

I agree with the above comments about Roth conversions and delaying SS being two important things to look at.

I would suggest a third item that is pretty good to get right is getting your assets placed into accounts in at least a reasonable fashion. This wiki article is a good place to start: https://www.bogleheads.org/wiki/Tax-eff ... _placement

I also think your relationship with your spouse and your physical health and well being are worth spending some time working on. These are not directly financial, but have financial impacts. Avoiding grey divorce and maximizing health span will both help financially.
RetiredAL
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by RetiredAL »

FXDXontherun wrote: Mon Jul 04, 2022 11:34 am My wife and I retired at 60 y/o and are both now 65. I have been doing a lot of research on social security claiming strategy's, (was planning on us both taking at 66.4 FRA), Roth Conversions, .......
You did not state what tax bracket you are in.

So do be aware when you start SS and you think you will only be in the 12% incremental bracket, you will find that after about $70K of income the SS Tax Hump effectively raises your incremental tax to 22%. Thus if you want to continue conversions, delaying SS will save you some tax $.

If you are already in the 22% incremental bracket, it's a mute point and you can ignore.
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LilyFleur
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by LilyFleur »

Spending our savings is indeed a different skill set.

I have income from various sources. I keep a big spreadsheet with estimated income (including itemization) and tax rates cascaded through the various brackets. I estimate the federal and state taxes withdrawn from my pension checks for the year.

I can play with it to see the impact of a Roth conversion, and also to see if I need to send in more estimated taxes. I update it throughout the year.

Since some of my income is a set pension, so my main variables at this point are my 401k withdrawals, when to take my Social Security, tax strategy year by year, and legacy planning.
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David Jay
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by David Jay »

FiveK wrote: Mon Jul 04, 2022 11:43 amStart with https://opensocialsecurity.com/ as a guide to when each of you should start SS.
For married couples, it almost always makes sense for the spouse with the larger benefit to delay claiming. The reason is that the larger benefit will be the size of the survivor's benefit, regardless of which spouse passes. This makes the calculation for the lower earning spouse "first-to-pass" and the calculation for the higher earning spouse "second-to-pass".

This fact tends to suggest filing early for the low earner (smaller payments starting sooner) and filing late for the high earner (larger payments for the long haul).
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
FXDXontherun
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by FXDXontherun »

RetiredAL wrote: Mon Jul 04, 2022 1:52 pm
FXDXontherun wrote: Mon Jul 04, 2022 11:34 am My wife and I retired at 60 y/o and are both now 65. I have been doing a lot of research on social security claiming strategy's, (was planning on us both taking at 66.4 FRA), Roth Conversions, .......
You did not state what tax bracket you are in.

So do be aware when you start SS and you think you will only be in the 12% incremental bracket, you will find that after about $70K of income the SS Tax Hump effectively raises your incremental tax to 22%. Thus if you want to continue conversions, delaying SS will save you some tax $.

If you are already in the 22% incremental bracket, it's a mute point and you can ignore.
Thanks for the reply. We are currently in the 12% tax bracket but when RMD's start at 72, we will most likely be in the 22% bracket which brings another question, where to invest RMD $ that you really don't need. I suspect much of it will go back into the portfolio as per our AA, but could some be invested in our Roth accounts?
jebmke
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by jebmke »

FXDXontherun wrote: Tue Jul 05, 2022 10:03 am but could some be invested in our Roth accounts?
Only if you have qualifying compensation.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Chadnudj
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by Chadnudj »

FXDXontherun wrote: Tue Jul 05, 2022 10:03 am
RetiredAL wrote: Mon Jul 04, 2022 1:52 pm
FXDXontherun wrote: Mon Jul 04, 2022 11:34 am My wife and I retired at 60 y/o and are both now 65. I have been doing a lot of research on social security claiming strategy's, (was planning on us both taking at 66.4 FRA), Roth Conversions, .......
You did not state what tax bracket you are in.

So do be aware when you start SS and you think you will only be in the 12% incremental bracket, you will find that after about $70K of income the SS Tax Hump effectively raises your incremental tax to 22%. Thus if you want to continue conversions, delaying SS will save you some tax $.

If you are already in the 22% incremental bracket, it's a mute point and you can ignore.
Thanks for the reply. We are currently in the 12% tax bracket but when RMD's start at 72, we will most likely be in the 22% bracket which brings another question, where to invest RMD $ that you really don't need. I suspect much of it will go back into the portfolio as per our AA, but could some be invested in our Roth accounts?
It would seem to me, then, that you should be doing Roth conversions, perhaps even into the 22% bracket, right? Better to pay 22% tax to get the funds into a Roth now (where they can grow tax free and RMD-free), than pay 22% on an RMD later and not be able to put the funds into a Roth because they were a RMD.....correct?
Silk McCue
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by Silk McCue »

FXDXontherun wrote: Tue Jul 05, 2022 10:03 am Thanks for the reply. We are currently in the 12% tax bracket but when RMD's start at 72, we will most likely be in the 22% bracket which brings another question, where to invest RMD $ that you really don't need. I suspect much of it will go back into the portfolio as per our AA, but could some be invested in our Roth accounts?
Once you reach 70.5 you can utilize Qualified Charitable Distributions from your IRA to pay $0 in taxes when donating to charity up to $100k per year. This is a key strategy for us in reducing taxes with 1 pension and 2 healthy SS benefits at that time. We are currently 61/63.

Cheers
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Rotwang
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by Rotwang »

FXDXontherun wrote: Tue Jul 05, 2022 10:03 am Thanks for the reply. We are currently in the 12% tax bracket but when RMD's start at 72, we will most likely be in the 22% bracket which brings another question, where to invest RMD $ that you really don't need. I suspect much of it will go back into the portfolio as per our AA, but could some be invested in our Roth accounts?
Assuming you and your spouse will not be working at 72 the unspent RMDs will need to go to your taxable account.
Roth contributions are limited by Taxable Compensation (think part time job, not things like RMD's, dividends or capital gains)
Roth conversions are possible but only after RMDs are taken. That is why, if you are going to do them, it's important to do them before RMD's kick in (especially if you can do them at your current 12% marginal tax rate).
Another thing you should look at is how your RMD's will be taxed in the future when one of you passes and the RMD's are taxed in the singles brackets. You might find that 22% is exceeded in that case.
Agent 99
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by Agent 99 »

I am living the scenario that you wrote about. I stopped working early but my husband, the higher earner, worked until 69 because he loved what he did. His plan was always to delay social security until 70 no matter if he was working or not. As a widow/widower it is important to understand the social security rules as the survivor and make it part of the plan that both you and spouse develop. It can be an expensive mistake, although I’m not and it doesn’t look like you are in the position to need the social security.

Most people who said I should apply for my husband’s social security were not informed investors although they might have been comfortably wealthy. Lesson is know the options now and stick to them unless the rules change of course.

The way I handled it is that when I turned 62 (although I think the age was 60) I took my social security early. Then at 66 and 2 months I will apply for my husband’s. There is a difference between FRA and the date the surviving spouse can collect survivor benefits. It’s not huge but it is earlier.

On the investment management side of things - we had been solely in charge of our financials. My husband was quite ill for 4 years prior to his death. I had no desire to manage the money, the taxes, etc. apart from paying bills. First I had to consolidate 26 accounts spread out between banks, investment houses, employers, etc. After that I hired a CPA and signed up for Vanguard’s PAS. I haven’t gone back to the way it was in 6 years and I doubt I will. The focus is not there and I am able to afford it.

Regarding taxes, RMDs, IRMAA etc. I have fretted over these issues too. Although not easy and not at 100% carefree I finally decided to stop agonizing - . Isn’t this one of the many reasons we saved for retirement - not to have to worry about squeezing every penny out of every move? If I wind up in 22% tax bracket well so be it. I don’t have children so I’m not concerned about legacy. You don’t mention whether you have kids so that might impact your financial path.

Another important piece is the estate planning documents need to be done and up to date. And ensure all accounts and assets are appropriately assigned beneficiary(s). I mistakenly left one account without a beneficiary during the consolidation. Fortunately it was a small amount but it had to go through probate which resulted in his children getting a look at his will but not the trust documents and having to pay obnoxious court fees and hefty attorney fee.
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celia
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by celia »

Rotwang wrote: Tue Jul 05, 2022 10:49 am Another thing you should look at is how your RMD's will be taxed in the future when one of you passes and the RMD's are taxed in the singles brackets. You might find that 22% is exceeded in that case.
An additional consideration is that the tax brackets are scheduled to revert to 2017 tax rates come 2026. The 22% brackets will become 25%.

So, I would be doing Roth conversions now when both the tax brackets and share prices are lower. Get some of the future growth going in the Roth where it can compound tax-free.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
delamer
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by delamer »

Aside from the concern about your wife handling the finances if you die first, you should take into consideration your own future potential cognitive changes.

What a 65-year-old can do easily might be much harder for an 80-year-old.

Simplify and rationalize is my motto. And if you have children, get them familiar with the basics of your finances in case they need to step in.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Mike Scott
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by Mike Scott »

I have not simplified accounts etc yet but along with my planning notes and records is an ongoing plan for how to consolidate accounts and how to use them (based on what I know now). I am not retired but via second hand accounts I am very aware that retirement, SS, Medicare, taxes etc bring an entirely new set of rules and complications to many people who do not really understand them well enough for their own benefit. Along with "end of life on your own" and cognitive decline concerns, it seems that there is a huge piece missing from the financial planning services industry.
sc9182
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by sc9182 »

Agent 99 wrote: Tue Jul 05, 2022 11:38 am I am living the scenario that you wrote about..

Regarding taxes, RMDs, IRMAA etc. I have fretted over these issues too. Although not easy and not at 100% carefree I finally decided to stop agonizing - . Isn’t this one of the many reasons we saved for retirement - not to have to worry about squeezing every penny out of every move? If I wind up in 22% tax bracket well so be it. I don’t have children so I’m not concerned about legacy. You don’t mention whether you have kids so that might impact your financial path.
..
Great advise and personal experience as highlighted above ..

Some crowd here (often 3 or 4 folks, who always hop on to RMD and Roth threads) fret/fear more about RMDs, Roth-conversions, Higher-taxes, and becoming single tax-bracket in future - at times wrongly, without looking at larger picture. Those folks try to pay (some un-necessary) taxes upfront due to Roth-conversions, and starve 401K/IRA accounts with un-necessary slow-growth investments -- so that they feel they can pay less taxes upon withdrawals/during-legacy (or try be in lower bracket in retirement). In the last 3 some years of tax-laws -- now RMD ages went up to 72, RMD withdrawal percentages went-down -- still RMD is still a Tax-Monster (according to that 3-crowd).

Nary a time this 3-crowd hardly mention how wonderful HSAs could be, no mention of Pensions are mostly going-away, no mention of how life's and market's un-eventful circumstances could SIGNIFICANTLY affect your current/future portfolio-size etc .. this crowd don't pay much attention to ACA-credits during Pre-Medicare age either ..

If you happen to amass/have LARGE 401K/IRA -- be proud, you earned good, saved good, invested good -- over multiple-decades -- and having a larger 401K/IRA balances is a sign of success -- don't worry about paying Uncle-Sam higher taxes -- you would have higher Net-Monies-into-Pocket anyway ..

Yes, Roths are good and Important -- but they wouldn't solve world-hunger (nor most of your retirement issues).

All-consuming worry about RMDs, IRMAA and Roths are -- in fact, like you said causes un-necessary stress; Diversification amongst types of accounts is the Key .. so that you can time/control your withdrawals depending on your intended tax bracket (and or Credits ..) -- so that use the flexibility offered by different types of accounts..

Oft used calculators here are getting better, but they slightly tend-to nudge towards Pro-Roth conversions. Re-Check your math with Tax software ..
Last edited by sc9182 on Tue Jul 05, 2022 1:01 pm, edited 2 times in total.
RetiredAL
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by RetiredAL »

FXDXontherun wrote: Tue Jul 05, 2022 10:03 am
RetiredAL wrote: Mon Jul 04, 2022 1:52 pm
FXDXontherun wrote: Mon Jul 04, 2022 11:34 am My wife and I retired at 60 y/o and are both now 65. I have been doing a lot of research on social security claiming strategy's, (was planning on us both taking at 66.4 FRA), Roth Conversions, .......
You did not state what tax bracket you are in.

So do be aware when you start SS and you think you will only be in the 12% incremental bracket, you will find that after about $70K of income the SS Tax Hump effectively raises your incremental tax to 22%. Thus if you want to continue conversions, delaying SS will save you some tax $.

If you are already in the 22% incremental bracket, it's a mute point and you can ignore.
Thanks for the reply. We are currently in the 12% tax bracket but when RMD's start at 72, we will most likely be in the 22% bracket which brings another question, where to invest RMD $ that you really don't need. I suspect much of it will go back into the portfolio as per our AA, but could some be invested in our Roth accounts?
If me in your shoes, I'd delay SS just so that I could convert more at better rates. The fact you are looking at the impact of RMD taxes now for planning is a +. Do look at what your "single" tax rate be. Long term, your goal should be maximizing usable income, and this is often opposite of a strategy to minimize taxes. Do understand there is no perfect single solution. Trying to hit perfect will drive you nuts. It's all about "in general", this strategy will achieve this, and that strategy will achieve that.

This is my first RMD year. About 1/2 of the RMD is in excess of our needs. It will go to taxable and be invested in something that minimizes Dividends.

Between our near 20 years of Roth contributions plus the IRA -> Roth conversions, we have a tidy amount of Roth $. This will be our last to spend money and likely will just go to our kids. The conversions were done to better position "the last standing" for taxes and to minimize IRMAA up-charges.

Others have commented about you needing wage income to contribute to a Roth and the 'order of withdrawals' needed before you do conversions when you reach RMD age.
GAAP
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by GAAP »

I would start with figuring out what you want to achieve -- and then writing it down. Start with goals, continue on with general strategies, then specific tactics, and finally a timeline. See the discussions about a retirement policy statement -- basically a retirement-specific version of an IPS (also good to look at).

Here are some excerpted examples from my plan:
Goals:
• Support a retirement income sufficient to maintain existing lifestyle and financial reserves indefinitely.
• Minimize SECURE Act impact of retirement portfolio on heirs.
Strategies:
• Allocate assets across broadly defined global categories.
• Avoid asset concentration by diversifying between and within asset classes and global economies.
• Select low-cost, passively-managed investment vehicles, with a preference for ETFs over Mutual Funds to allow for potential expatriate retirement.
• Expect and plan for a degree of variability in retirement income to allow for portfolio survival in real terms.
• Maximize tax efficiency when selecting asset location across multiple account types.
• Reduce future income and estate taxes via systematic Roth IRA conversions.
• Manage defined benefit disbursement options vs. bridging vs. Roth IRA conversions to maximize overall net income in real terms.
• Maintain awareness of potential Defined Benefit funding issues and plan for related impacts.
Tactics:
• Complete Roth conversions tax-efficiently prior to claiming Social Security to minimize tax impacts.
• Liquidate mutual funds after Roth Conversions are complete and prior to claiming Social Security to minimize tax impacts and Roth withdrawals, reducing Roth withdrawals to match.
• Withdraw from Roth to maximize transfer of earnings to tax-free accounts from tax-deferred accounts via Roth conversions.
• Manage cash flows to delay withdrawals from tax-favored accounts.
Several of the above items are very specific to my situation and probably don't apply to you at all (e.g., a non-indexed State Estate Tax, potential expatriate retirement). Create your own version and add specifics about your AA to this, along with information about your estate plan (and how to fund it) -- and describe how to maintain your portfolio, calculate withdrawals, manage cash-flow, etc.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
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CAsage
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by CAsage »

Sharing my own thoughts. Us: MFJ, healthy pretax IRA (aka tax bombs), dual social security, no pensions. Eventually you will end up filing single. We used opensocialsecurity.com (and there's a book if you want to read the rules) - and it was a big surprise to me (since you always hear everyone waiting longer to increase benefits) that having the higher earner claim later is good, but you do not benefit by having the lower income spouse defer. Also, if you foresee being into the 22% bracket in the near term .... you will not lose by doing Roth conversions up to the top of the 12% bracket now. In our case, we convert and withdraw up to the top of the 22% bracket and blew through that last year when the stock market crashed. Our rationale is that we have to withdraw it all eventually, and taxes aren't going down. The future growth rate is the same inside the IRA vs outside, so asset placement is very important. If you have multiple accounts, put your bonds in IRA/401k, your stock in Roth or taxable (very favorable for inheritance). Our children's tax bracket is also a consideration, since any inherited IRA must be withdrawn in 10 years. Don't worry about IRMAA (mostly), though watching the trigger levels is good. Load leveling your taxes across lifespan helps.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
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WoodSpinner
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by WoodSpinner »

FXDXontherun wrote: Mon Jul 04, 2022 11:34 am My wife and I retired at 60 y/o and are both now 65. I have been doing a lot of research on social security claiming strategy's, (was planning on us both taking at 66.4 FRA), Roth Conversions, (did one last year and again this year), Tax, RMD and IRMAA strategy. I've been pretty much a buy and hold investor, (with 88% of a $2M portfolio at VG), for most of my adult life and have concluded that building wealth before retirement is much easier than managing it properly after retirement.

Right now I think I can manage these things If I was sure what to look for but if I were to precede my wife in death I know she would need someone to manage her portfolio so going to an investment advisor may be in our future anyway.

Having said that, what would be your opinions on the most important things to be sure you get right in retirement? I have searched for some online resources to help retirees themselves manage these various components but have found nothing but investment brokers that want to manage my money.

Thanks in advance for any responses.
OP,

First, here is a link to the Retirement Policy Statement WIKI :
https://www.bogleheads.org/wiki/Retirem ... _statement

That said, I would also urge you to consider some Non-Financial, Non-Estate actions. My bias is that my relationships with my wife, my daughter, family and friends is at least as important as the financial details. Add to that, some kind of purpose, exercise and hobbies in Retirement are key as well.

WoodSpinner
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SGM
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Re: Questions about Managing taxes, RMD's, Social Security and everything else in retirement,

Post by SGM »

We took the time while delaying SS until 70 to convert traditional IRA and 401k accounts to Roth accounts. Only at the time of conversion, if you pay the taxes out of a taxable account the buying power is exactly the same as if you left the accounts unconverted. A lot of financial advisors don't understand this simple fact. Read James Lange.

I began conversions in 2010 when the law first allowed Roth conversions regardless of income. I am too busy enjoying retirement to get into arguments about the benefits of Roth conversions. It has been a great move for us.
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