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Redrick Terry:
It’s now time for 4 Your Money. We’re joined by Nate Kreinbrink of NelsonCorp Wealth Management. Nate, welcome back.
Nate Kreinbrink:
Thanks Frederick, for having me again.
Redrick Terry:
Absolutely. We’re talking about retirement and Social Security. Sometimes they seem to go hand in hand, but that isn’t necessarily the case.
Nate Kreinbrink:
Obviously, a lot of times it’s not. Social Security, when do you take it and when to retire are two major decisions that people usually lump together. They retire and then the next day they file for their Social Security benefit.
Nate Kreinbrink:
But what we want people to do is look at these decisions as two separate ones when making them. A lot of times people come to me, and I say, “No, I’m not telling you to work until age 70. But when you retire, you can delay your Social Security benefits up until age 70, and during that time period there’s some planning that we can do.”
Nate Kreinbrink:
Also, with your Social Security benefit, when we lock this in, we don’t want to lock in a lower benefit for the rest of our lives. So again, we want to try to maximize that. And if you’re married, trying to coordinate that as well.
Redrick Terry:
Now, if these two separate decisions are in fact separate, how do people kind of bridge that gap between retirement and the Social Security benefits?
Nate Kreinbrink:
Great question. I think we have a chart here that kind of illustrates some of this here. This chart up top is a fairly common breakdown of retirement assets when we work with people.
Nate Kreinbrink:
With the blue section there being tax-deferred, so traditional 401k, traditional IRAs, the goal there being Roth accounts. Then the other one being taxable accounts, so checkings, savings, individual accounts.
Nate Kreinbrink:
But with this being, the blue here, being the bulk of people’s assets through retirement accounts, through their 401ks, when that money comes out that is taxable to them. So we want to look at from the time when we retire, okay, up until age 70. There’s a window of opportunity there where we can take that out at lower tax brackets. So if we can take more money out of these accounts at lower taxes, we’re going to be able to keep more in our pocket and pay less in taxes.
Nate Kreinbrink:
Well by doing so, we’re bridging that gap up until age 70, when potentially we could maximize our Social Security benefit, and it’s going to be the biggest at that point in time. That’s kind of shown down here by this graph as far as, individual stops working, their tax brackets considerably drop off, during this time period is when we want to try to take as much money out of these accounts as we can at a lower tax bracket. Then at age 70, switch over to a bigger Social Security benefit.
Nate Kreinbrink:
Then as well, these tax deferred accounts have what we call a required minimum distribution. Meaning at age 70.5, if you haven’t taken money out of it, you have to start taking a percentage out. So that’s added onto your income as well.
Nate Kreinbrink:
Again, it’s all about controlling our taxes throughout retirement, and then understanding what we can do to maybe reduce those as we go.
Redrick Terry:
Certainly. Take advantage of that time frame, a lot of good can come from it.
Nate Kreinbrink:
Exactly.
Redrick Terry:
All right Nate, thanks so much for joining us as always.
Redrick Terry:
If you missed any part of our discussion, we’ll make it available for you on OurQuadCities.com.
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