Remember, Your IRA Balance is Inflated by 25% Since the Government Still Gets Its Cut

 

Before I retired, my “retirement income planning” meant shovel as much as possible into my IRA, then throw some extra into taxable savings.  Then one day I’d add Social Security (if it still existed). That was my entire plan, and I suspect many of you reading this are in that same boat.

Fast-forward to my first year of retirement, when I discovered I suddenly had to become an expert in:

• Taxes, surprisingly more complex than when you have straight W2 income
• Roth conversions
• Required Minimum Distributions (RMDs)
• Return of Capital (ROC), meaning that clever investment choice I made actually has a hidden capital gain down the road
• IRMAA, not my great aunt, but a Medicare surcharge if your retirement income passes a threshold
• The Rubik’s Cube of mixing pre-tax, post-tax, and Social Security income, and figuring out the best moves more than a decade in advance

And this is years before I have to deal with Medicare, supplements, and that IRMAA surcharge I didn’t even know existed before 30 days ago.

A surprising number of decisions need to be made years in advance, and some, like when you take Social Security, are permanent.

Sure, there are plenty of experts out there, but they all have strong (and conflicting) opinions. Just look at the permanent cage matches among YouTube financial gurus:

• Roth IRA conversions: brilliant or disastrous? (Dozens of people on both sides.)
• Social Security: take it early at 62, or delay to 70? (Pros and Cons for both)
• RMD strategy: panic now or panic later? (Arguments on both sides)

There is no one-size-fits-all.  At some point, you have to learn enough about all these topics to make decisions based on your goals, whether that’s leaving a legacy to your heirs or partying it away while you’re still around. Most retirement software assumes “maximize assets at death,” which may not match your priorities, plus you can’t take it with you.

So my advice as I sit here rooting for your continued employment to pay into my Social Security is: Look into this stuff now, not the year you retire.

Believe me, as I’m currently kicking myself for some IRA vs. taxable investment decisions I made twenty years ago.