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Category: Financial Planning

Trump Accounts: A Complete Guide to Retirement Savings for Children

We’re approaching a significant milestone in the history of financial planning. July 4th, 2026, marks the one-year anniversary of the One Big Beautiful Bill Act. This presents a unique planning opportunity that many families are just beginning to understand: Trump Accounts.

If you’re a parent or grandparent thinking about your children’s financial future, or if you’ve reached a point where you want to practice legacy planning with a “warm hand” instead of waiting until you’re gone, Trump Accounts offer an entirely new approach to retirement savings for minors.

The timing couldn’t be more relevant. Many families who have achieved financial independence are now looking beyond their own retirement security toward setting up the next generation for success. Trump Accounts offer something that hasn’t existed before. A way to start retirement savings for children without the traditional barriers that have limited options in the past.

What Are Trump Accounts and How Do They Work?

Trump Accounts are a result of the One Big Beautiful Bill Act signed into law on July 4th, 2025. While the full economic impact of this legislation is still unfolding amid ongoing global conflicts that are affecting oil prices and inflation, the tax benefits have already begun helping many families. Think of Trump Accounts as traditional IRAs specifically designed for minor children. But they come with some important differences that make them accessible in ways that traditional retirement accounts are not.

The fundamental concept is straightforward. Trump Accounts allow you to make tax-deferred investments on behalf of children under 18, regardless of whether they have earned income. This removes the biggest barrier that has historically prevented families from starting retirement savings for children early. Traditional and Roth IRAs require earned income, so most young children can’t participate. Trump Accounts change that equation entirely.

The money you contribute grows tax-deferred, similar to a traditional IRA, but with some unique features. Individual/family contributions are made with after-tax dollars, similar to non-deductible IRA contributions. The account remains under custodial management until the beneficiary reaches 18 years old. At that point it converts to a traditional IRA in their name.

Setting Up Child Retirement Accounts: Rules and Requirements

Understanding the rules for Trump Accounts is essential before you decide whether they fit into your family’s financial strategy. The beneficiary must be under 18 years old and have a valid Social Security number. Only parents or legal guardians can open and manage these accounts as custodians. Grandparents, family members, and friends can contribute to existing accounts.

One important limitation: there can only be one Trump account per beneficiary. Unlike 529 plans, which allow multiple accounts for the same child, Trump Accounts follow a one-per-person rule. This means coordination becomes important if multiple family members want to contribute.

The contribution structure offers some interesting opportunities. The total annual contribution limit for 2026 is $5,000 per beneficiary. However, there’s an additional opportunity through employer contributions. If you’re a business owner or your employer participates in the program, up to $2,500 can be contributed on behalf of an employee’s Trump Account. That contribution counts toward the $5,000 total limit. This means you could potentially contribute $2,500 that is tax-deductible for the business, plus another $2,500 from personal after-tax income.

Several major companies have already committed to offering Trump account contributions as employee benefits. There are roughly 60 companies that have pledged to make contributions on behalf of their employees or employees’ beneficiaries. These include:

  • Bank of America
  • BNY Mellon
  • Schwab
  • BlackRock
  • Chase
  • Wells Fargo
  • Broadcom
  • Coinbase
  • IBM
  • Dell
  • NVIDIA

There’s also a special “pilot contribution” opportunity. The U.S. Treasury Department will provide $1,000 in seed funding for Trump Accounts opened for children born between 2025 and 2028. This free money doesn’t count against your $5,000 annual contribution limit, making it an attractive starting point for eligible families.

Investment Options for Trump Investment Accounts

The investment choices for Trump investment accounts are deliberately simple and conservative. You won’t find cryptocurrency options, individual stocks, or complex investment vehicles. Instead, Trump investment accounts are restricted to broad-based index funds and ETFs that focus primarily or exclusively on U.S. equities. While this might seem limiting, it actually aligns well with long-term wealth-building strategies.  Think of time in the market as opposed to timing the market.

For most families just getting started with long-term investing, sophisticated investment options aren’t necessary. The power of Trump Accounts lies in time and compounding, not complex investment strategies. Having decades for money to grow in broad market index funds has historically been one of the most reliable wealth-building approaches available.

BNY Mellon will initially manage the accounts through its infrastructure, while Robinhood will handle account custody. While you won’t be able to open Trump Accounts directly through traditional brokerages like Schwab or Fidelity initially, these options will likely become available as the program matures and compliance requirements are established.

Understanding Liquidity and Long-Term Implications

One of the most important aspects of Trump Accounts is understanding when and how funds become accessible. There is no liquidity until the beneficiary reaches 18 years old (or 21 in some states, depending on the age of majority). This is a significant consideration that differentiates Trump Accounts from other savings options.

Once the beneficiary reaches the age of majority, the Trump account automatically converts to a traditional IRA in their name. At this point, traditional IRA rules apply. This includes the 10% early withdrawal penalty for distributions before age 59½, as well as ordinary income taxes on any growth. The original after-tax contributions can be withdrawn without additional taxes, but tracking this basis becomes crucial for tax purposes.

There are some exceptions to the early withdrawal penalties, similar to traditional IRAs. Qualified education expenses, first-time home purchases, and certain hardship situations, such as disability or unemployment, may allow penalty-free withdrawals. However, ordinary income taxes would still apply to the growth portion.

One unique feature is the option to roll Trump account funds into an ABLE account when the beneficiary turns 17, if the child has a qualifying disability. ABLE accounts allow individuals with disabilities to save money without affecting their eligibility for federal benefits like Supplemental Security Income. This option provides important protection for families dealing with special needs planning.

Trump Accounts vs Other Retirement Savings for Children Options

When you evaluate retirement savings strategies for children, you need to consider Trump Accounts alongside other established options. The most popular alternative is the 529 education savings plan, which offers some significant advantages that Trump Accounts cannot match.

529 plans provide state income tax deductions in many states, something Trump Accounts do not offer. The money grows tax-free, and when used for qualified education expenses, distributions are completely tax-free. Recent changes have expanded 529 flexibility, allowing up to $20,000 annually for K-12 private school expenses and enabling 529-to-Roth IRA rollovers under specific conditions.

The 529-to-Roth IRA rollover option is particularly powerful. After a 529 account has remained open for 15 years, you can roll up to $35,000 into a Roth IRA for the beneficiary over time, subject to annual IRA contribution limits. This provides a tax-free path to retirement savings that Trump Accounts cannot match, since conversions from Trump Accounts to Roth IRAs would be taxable events.

Custodial brokerage accounts (UTMA/UGMA accounts) offer another alternative with complete investment flexibility and no contribution limits beyond annual gift tax thresholds. These accounts don’t provide tax-deferred growth. They offer capital gains tax treatment rather than ordinary income tax treatment, and can be used for any purpose without penalties. The trade-off is that the child gains full control at 18 or 21, which may or may not align with your comfort level.

For families with children who have earned income, Roth IRAs remain an excellent option. A working teenager can contribute to a Roth IRA and potentially receive decades of tax-free growth. The combination of a Roth IRA for earned income plus a Trump account for additional savings could provide a powerful one-two punch for families with the resources to fund both.

Comparing Retirement Savings for Children Strategies: A Prioritization Framework

When deciding how to prioritize different retirement savings options for children, consider your family’s specific goals and circumstances. If education funding is a primary concern, 529 plans should typically be the first option. The tax advantages, flexibility for K-12 expenses, and the 529-to-Roth IRA rollover option make them superior for most families focused on education costs.  Additionally, you can transfer an unused 529 to that adult child, who can ultimately use it for a future child’s education expenses. 

For families who have already addressed education funding or have additional resources, custodial brokerage accounts often offer more flexibility than Trump Accounts. The ability to use funds for any purpose without penalties, combined with more favorable capital gains tax treatment, makes custodial accounts attractive for families comfortable with transferring control to their children at the age of majority. 

Trump Accounts might make the most sense as a third-tier option, particularly for families with children born between 2025 and 2028 who can take advantage of the $1,000 pilot funding. The accounts also become more attractive if your employer offers contribution matching or if you’re a business owner who can take advantage of the tax-deductible employer contribution option.

One alternative approach that deserves consideration is to overfund your own taxable brokerage account for the purpose of using it for lifetime gifting and legacy purposes. This strategy maintains your control over the assets while providing flexibility to make gifts when your children or grandchildren actually need financial support, whether for

  • Education
  • Home purchases
  • Business ventures
  • Other life goals 

When you pass away, those assets can receive a step-up in cost basis, making it one of the most powerful legacy buckets available. 

Tax Considerations and the Kiddie Tax Impact

Understanding the tax implications of Trump Accounts requires familiarity with “kiddie tax” rules, which can significantly impact the effectiveness of certain strategies. The kiddie tax applies to the unearned income of children under 18 (or to full-time students under 24 who don’t provide more than half of their own support).

For 2026, the first $1,350 of unearned income is tax-free. The next $1,350 is taxed at the child’s rate (likely very low). Any unearned income above $2,700 is taxed at the parents’ marginal tax rate. This becomes particularly relevant when considering Roth conversion strategies once Trump Accounts convert to traditional IRAs.

Many online discussions suggest that converting funds from a Trump account into Roth IRAs after age 18 represents a significant planning opportunity. However, the kiddie tax rules can make this strategy less attractive than it initially appears. If the beneficiary still qualifies as a dependent on their parents’ tax return, the parents’ higher marginal tax rates could apply to large Roth conversions instead of the child’s lower rates.

More effective conversion opportunities may arise after the child graduates from college and begins working independently. They will not be subject to kiddie tax rules and can take advantage of their own lower tax brackets. However, at that point, the decision belongs to the child, not the parents who originally funded the account. 

Are Trump Accounts Right for Your Family?

Trump Accounts represent a new tool in the family financial planning toolkit. Still, they’re not necessarily the best tool for every situation. They work best for families who have already addressed their primary financial goals:

  • Retirement security
  • Education funding for their children
  • Other immediate financial priorities

The accounts make the most sense when viewed as part of a comprehensive approach to lifetime legacy planning rather than as a standalone solution.

If you’re in a position where you’ve achieved financial independence and are looking for additional ways to benefit your children or grandchildren, Trump Accounts can play a role, particularly if you can take advantage of the pilot funding or employer contribution opportunities.

However, liquidity restrictions, ordinary-income tax treatment, and limited investment options make Trump Accounts less flexible than alternatives such as 529 plans or custodial brokerage accounts. The conversion to a traditional IRA at age 18 does provide some planning opportunities. These need to be weighed against the immediate benefits available through other savings vehicles.

For most families, a prioritized approach makes sense:

  • 529 plans for education funding
  • Roth IRAs for children with earned income
  • Consideration of Trump Accounts or
  • Custodial brokerage accounts for additional savings goals

The key is to understand how each option fits into your overall family financial strategy, rather than viewing any single account type as a complete solution.

The introduction of Trump Accounts adds another option to consider. Still, the fundamentals of long-term wealth building remain the same:

  1. Start early
  2. Invest consistently
  3. Give time and compounding the opportunity to work

Whether you choose Trump Accounts, 529 plans, custodial accounts, or a combination of strategies, the most important step is starting with a plan that matches your family’s goals and comfort level.

Need More Guidance?

At Imagine Financial Security, we help individuals over 50 who have at least $1 million saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel. This is for general education purposes only and should not be considered as tax, legal, or investment advice.

5 Essential Retirement Tax Planning Strategies for High Net Worth Individuals: The “Poor on Paper” Advantage

If you have a net worth of $2 million or more but find yourself in the 12% tax bracket during retirement, congratulations—you’re officially “poor on paper.” This might sound like a contradiction. Actually, it’s one of the most powerful positions you can be in for tax planning. When you’re high net worth but have low taxable income, you unlock planning opportunities that can save you tens of thousands of dollars in taxes and healthcare costs.

The concept of being “poor on paper” came from one of my clients, who recently retired with a net worth of multiple seven figures. He went from a higher income bracket during his working years to the 12% bracket in retirement. His net worth continues to grow, but his tax bracket has dropped dramatically. “Wow, I’m poor on paper now,” he told me, and that phrase perfectly captures this unique planning window.

This situation typically occurs when you’re in early retirement. The time after your W-2 income stops but before you’re required to take Social Security or required minimum distributions from your retirement accounts.

Understanding the “Poor on Paper” Concept

Financial planning for high-net-worth individuals requires a completely different approach than traditional retirement advice. When you have substantial assets but low current income, you have unique levers to pull that most retirees don’t.

The key is having assets in what I call the “non-qualified bucket.”

  • Taxable brokerage accounts
  • Money market accounts
  • CDs
  • Savings accounts that you’ve built up outside of your 401(k) or IRA.

If all your money is locked in tax-deferred accounts, you’re somewhat stuck because every withdrawal creates ordinary income.

When you have diversified assets across different account types, you can strategically control your modified adjusted gross income (MAGI) and ultimately your taxable income. This control becomes the foundation for all the strategies we’ll discuss.

Strategy 1: Maximizing ACA Premium Tax Credits for Healthcare Savings

One of the biggest concerns I hear from early retirees is healthcare costs. If you’re retiring before 65 and not yet eligible for Medicare, you’ll need to figure out health insurance on your own. The Affordable Care Act (ACA) marketplace often becomes the solution, and here’s where being poor on paper creates massive opportunities.

ACA premium tax credits are based on your modified adjusted gross income, not your assets. Even with a $3 million portfolio, if you keep your MAGI between 100% and 400% of the federal poverty line, you can receive substantial tax credits. Sometimes $3,000 per month or more, depending on your state.

I recently worked with a client with $3 million in net worth who is receiving free healthcare through ACA premium tax credits. The key is managing your income sources strategically. Instead of taking large distributions from tax-deferred accounts, you might use cash savings for year one of retirement. Taking money from your savings account isn’t a taxable event—it’s just a return of your basis.

For your brokerage accounts, you can target assets with low to no capital gains, or even assets that are temporarily down in value. Selling at a loss allows you to offset other gains. This keeps your taxable income low while still generating the cash flow you need.

The strategy works best when you have multiple income sources to choose from. Maybe you take $50,000 from cash savings and only need to withdraw $55,000 from your IRA to net $50,000 after taxes. A $55,000 adjusted gross income can still allow you to qualify for significant premium tax credits, potentially saving thousands monthly on healthcare premiums.

Strategy 2: The Roth Conversion Window and 401 (k) Withdrawals and Taxes

Understanding 401 (k) withdrawals and taxes becomes crucial during what I call the “Roth Conversion Window.” This is the period after retirement but before required minimum distributions kick in at age 73 or 75, depending on your birth year.

During your working years, Roth accounts might not make sense because you’re already in high tax brackets. You may prefer deferring taxes (Traditional 401(k)s and IRAs).  But in retirement, when you’re poor on paper, you have an opportunity to move money from tax-deferred accounts to Roth accounts at historically low tax rates.  This is known as a “Roth Conversion.” 

Here’s the Challenge

Every Roth conversion adds to your modified adjusted gross income, which can impact your ACA premium tax credits. You need to weigh the long-term benefits of the conversion against the immediate cost of reduced healthcare subsidies.  However, if you completely ignore this Roth Conversion Window, those Required Minimum Distributions (RMDs) can really hurt later in retirement. 

I have clients right now who are in what I call the “RMD tax trap” because they didn’t do conversions earlier. When required minimum distributions begin, you can’t reverse the process. Some of my clients are taking six-figure RMDs. They tell me they wish they had converted some of those assets to a Roth before reaching RMD age.

The key is coordination. You might decide to do modest conversions that fill up the 10% or 12% tax brackets, even if it reduces some ACA tax credits. The long-term tax savings from avoiding massive RMDs later often outweigh the short-term cost of higher healthcare premiums.

One client I’ve been working with for four years started this process at age 61. She’s been chipping away at her tax-deferred accounts through strategic conversions while supplementing her income with IRA withdrawals. When she turns 70 and starts Social Security, most of her tax-deferred money will have been converted to Roth. This will dramatically reduce her future RMD burden.

Strategy 3: Optimizing Social Security Taxation Through Income Management

Social Security taxation is one of the most misunderstood aspects of retirement planning. You paid into the system during your working years. However, up to 85% of your benefits can still be taxable under a concept called “provisional income.”

When you’re poor on paper, you have the opportunity to keep your provisional income low enough that much of your Social Security remains tax-free. There are three tiers: 0% taxable, 50% taxable, and 85% taxable.

The strategy involves coordinating the timing of your Social Security benefits with your other income sources. If you’re doing Roth conversions during your early retirement years and plan to delay Social Security until age 70, you might be able to structure things so that when Social Security begins, your other income sources are low enough to keep most of your benefits tax-efficient.

I’m working with a client whose husband is already taking Social Security. She hasn’t started hers yet because her benefit is higher. We’ve been doing conversions during her Roth conversion window. When she starts Social Security at 70, the combination of her and his Social Security and her small pension won’t require large IRA withdrawals. This could allow most, if not all, of your Social Security benefits to remain tax advantaged. 

The timing coordination is crucial. Taking Social Security early might make sense in some situations, but it can also add to your provisional income calculation, potentially making more of your benefits taxable and reducing the effectiveness of other strategies.

Strategy 4: Capital Gains Harvesting to Minimize Taxes in Retirement

Capital gains harvesting helps minimize taxes in retirement while providing another tool for managing your taxable income. Depending on your filing status, you’ll pay either 0%, 15%, or 20% on long-term capital gains. Most retirees won’t hit the 20% bracket, but the difference between 0% and 15% is significant.

When you’re poor on paper and in the 0% capital gains threshold, you can sell appreciated investments and pay 0% federal tax on the gains. This strategy essentially resets your cost basis to current market values, reducing future tax obligations when you eventually need to sell for income.

The key is coordination with your other strategies. Every time you harvest gains, you’re adding to your adjusted gross income, which affects:

  • Social Security taxation
  • ACA premium tax credits
  • Your Roth conversion capacity.

If you’re planning to leave investments to your heirs, you might not want to harvest gains. Why? Because they’ll receive a stepped-up basis at your death. But if you’re concerned about concentration risk—like one of my clients who has over 13% of her net worth in Microsoft stock from her late husband’s employment—strategic harvesting combined with charitable giving can address both the tax and risk management issues.

For charitable giving, you can donate appreciated stock directly to a charity. The charity can sell it at their 0% tax rate. You get the deduction, and you reduce the concentration risk in your portfolio.

Strategy 5: How to Reduce Taxes in Retirement Through Coordinated Planning

The fifth strategy is really about coordination—understanding that all these approaches work together and not in silos. You can reduce taxes in retirement most effectively when you coordinate the timing of:

  • Social Security
  • The pace of Roth conversions
  • Your healthcare subsidy optimization
  • Your capital gains management

The early retirement phase, before required minimum distributions and potentially before Social Security, is when all these strategies overlap. This is your window to play the tax game on your terms rather than having the government dictate your tax burden through RMDs and taxation on your Social Security Income.

The biggest mistake I see is people coasting through these early retirement years without taking advantage of these planning opportunities. They’re either not working with an advisor who understands retirement taxes or not consuming educational content about these strategies. By the time RMD Tax Trap kicks in, it’s too late to reverse course.

The goal isn’t to avoid taxes forever—it’s about timing those taxes strategically. You want to pay taxes when you’re in low brackets and have control over the timing, rather than being forced into high brackets later when you have no choice.

Coordination Is Everything: Why These Retirement Tax Planning Strategies Must Work Together

These retirement tax planning strategies are most effective when implemented as a coordinated system. Each decision affects the others, which is why piecemeal planning often fails to deliver optimal results.

For example, if you focus solely on maximizing ACA premium tax credits, you might miss valuable years in your Roth conversion window. Conversely, if you’re aggressive with Roth conversions without considering the impact on healthcare subsidies, you might pay more in premiums than you save in future taxes.

The coordination becomes even more complex when you consider factors such as the senior bonus deduction available to those aged 65 or older. This additional $6,000 deduction per person phases out at relatively low income levels—$75,000 for singles and $150,000 for married filing jointly. Roth conversions can easily push you above these thresholds, eliminating the deduction.

I’ve had to convince many people not to do Roth conversions over the past few years, which is the opposite of what I was doing a decade ago. The popularity of Roth conversions has made them seem like a universal solution. But, they’re not right for everyone in every situation.

The key is working with someone who can:

  1. Review your entire financial picture
  2. Understand your goals
  3. Coordinate these strategies appropriately.

Whether that’s working with my firm or finding another advisor who specializes in retirement tax planning, the important thing is getting professional guidance that considers all these moving pieces together.

Taking Action on Your Retirement Tax Planning Strategies

If you’re approaching retirement or have recently retired with 7 figures or more in assets but low current income, you’re in a unique position to implement these strategies. The window won’t last forever—once RMDs begin or if your income increases significantly, many of these opportunities disappear.

The most important step is understanding what you’re planning for and who you’re planning for. Are you focused on maximizing your own retirement security, leaving a legacy to children, or supporting charitable causes? Your goals should drive which strategies make the most sense and how aggressively to implement them.

Don’t assume that all of these strategies are right for your situation. Content like this is educational, but it can also be dangerous if you implement strategies without understanding how they fit into your overall plan. Every conversion triggers taxes. Gain harvests can affect your income. And each decision creates ripple effects across the rest of your financial plan.

If you’re interested in working with an advisor who specializes in these retirement tax planning strategies, make sure they’re a fiduciary who won’t try to sell you unnecessary products. Look for someone who can actually review your tax returns and coordinate with your tax preparer. Retirement tax planning isn’t just about investments—it’s about understanding the tax code and how to work within it strategically.

The early retirement years, when you’re poor on paper, represent one of the best opportunities for tax optimization you’ll ever have. Don’t let them pass by without taking advantage of the strategies that could save you thousands of dollars in taxes and healthcare costs over the course of your retirement.

How We Can Help

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

TIAA Traditional Withdrawal Options: Your Complete Guide to Four Payout Choices

If you have money in TIAA Traditional, you’ve probably wondered what your options are when it’s time to take your money out for retirement. Understanding your TIAA Traditional withdrawal options is one of the most important decisions you’ll make in your retirement planning journey. Yet, it’s also one of the most confusing aspects of TIAA retirement accounts.

What is TIAA Traditional?

It’s a fixed annuity that’s part of your 403(b) retirement account, specifically designed for employees of:

  • Non-profit organizations
  • Hospitals
  • Universities
  • Schools

Unlike variable investments that fluctuate with market performance, your TIAA traditional annuity provides stability through guaranteed minimum interest rates and participation in TIAA’s carefully managed general account.

Retirement planning decisions involving TIAA Traditional are particularly complex because it’s a unique product with specific rules and options. While this guide covers the four main payout choices available, it’s important to consider how these options align with your overall financial picture, including:

  • Other income sources
  • Other investments
  • Retirement timing
  • Risk tolerance
  • Legacy goals.

Understanding Your TIAA Traditional Options

TIAA Traditional is different from the variable annuity options in your 403(b) account, such as CREF stock, CREF growth, or CREF bond. While those investments tie your returns to market performance, TIAA Traditional provides returns based on TIAA’s general account performance. This massive, conservatively managed portfolio includes traditional bonds, commercial real estate, agriculture, timber, and other stable investments that TIAA has been managing for over 150 years.

There are several types of TIAA traditional contracts, and each has different rules and interest rates. You might have older contracts from contributions made decades ago, or newer contracts from recent contributions. Some contracts are fully liquid (marked with an “S” for supplemental), while others have liquidity restrictions. Furthermore, there are even certain “Plan Rules” within your organization that might create additional complexity around the availability and liquidity of funds.  Understanding which type of contract you have and your plan’s rules is crucial for determining your available options.

Option 1: Required Minimum Distribution (RMD) or Minimum Distribution Option (MDO)

The first way to access your TIAA traditional funds is through the required minimum distribution option, also called the minimum distribution option by TIAA. This option becomes available when you reach the age when the IRS requires you to start taking distributions from your tax-deferred retirement accounts.  If you miss an RMD, you could be subject to a 25% penalty! 

The RMD age has changed over the years due to legislation. Previously set at 70.5, it was raised to 72 by the SECURE Act. RMD now stands at 73 or 75, depending on your birth year. If you were born in 1960 or later, your required minimum distribution age is 75.

How the Math Works

The IRS provides a life expectancy table that determines your distribution factor based on your age. For example, if you turn 75 in 2025, your life expectancy factor is 24.6. You divide your account balance by this factor to determine your required distribution amount.

Example

Let’s say you have $1 million in a TIAA traditional account. At age 75, you would divide $1 million by 24.6, resulting in a required distribution of approximately $40,650, or about 4% of your account balance. As you age, your life expectancy decreases, which means your required distributions increase. By age 90, with a life expectancy factor of 12.2, that same $1 million would require a distribution of nearly $82,000.

This creates what I like to call the “Tax Trap of 401ks and IRAs.” If you have substantial Social Security payments and perhaps a pension, and you don’t need these tax-deferred assets for current income, those increasing RMDs can push you into higher tax brackets and trigger additional costs like Medicare surcharges or IRMAA.

The advantage of this option is continued tax deferral while pulling out the minimum required by the IRS. Before reaching RMD age, you can let your account continue growing tax-deferred without being forced into any payout structure. You can also change to other options later if your needs evolve.

Option 2: Interest-Only Withdrawals

The second option allows you to withdraw only the interest your TIAA traditional account earns while leaving your principal intact. Each of your TIAA traditional accounts has an associated interest rate that depends on when you made the contributions and what type of contract you have.

Contributions made in the 1970s, 1980s, and 1990s typically carry much higher interest rates than contributions made after 2009, when interest rates dropped to near zero following the Great Recession. However, even recent TIAA traditional contributions often provide interest rates of 4% to 4.5% or higher, which compare favorably to traditional bond investments that have averaged less than 2% annually over the past 10-15 years.

The interest rates also vary by contract type. Contracts without an “S” designation (such as RA and GRA contracts) typically offer higher interest rates but come with liquidity restrictions. These are usually funded by employer contributions. Contracts with an “S” designation (SRA and GSRA contracts) are supplemental contracts funded primarily by your own contributions. They offer slightly lower interest rates but provide full liquidity.

Example

Using our $1 million example with a combined interest rate of 4.5%, your account would generate approximately $45,000 in annual interest. With the interest-only option, you could receive this $45,000 as income while preserving your $1 million principal balance. You can typically choose to receive these payments monthly, quarterly, semi-annually, or annually, depending on your cash flow needs.

This option works well if you need supplemental income but want to preserve your principal for future needs or to leave as a legacy. The interest payments from pre-tax 403b accounts are treated as taxable income in the year you receive them, just like any other distribution from a tax-deferred account. However, there are usually restrictions on how frequently you can start and stop these payments. You’ll want to confirm the specific rules for your contracts.

Option 3: Annuitization – Creating a Lifetime Income Stream

The third option, and what many experts consider the most underutilized, is annuitization. This means exchanging your account balance for a guaranteed income payment that will continue for as long as you live, or for as long as you and your spouse live if you choose a joint option.

When you annuitize your TIAA traditional account, you’re essentially trading your account balance for an income stream you can never outlive. The amount of income depends on several factors:

  • Your age
  • Your account balance
  • The interest rates of your various contracts
  • The payout option you select

Real Example

A 67-year-old client with various TIAA traditional contracts dating back decades received an illustration showing a single life payout rate of 8.81% with a 10-year guarantee period. This means that for every $100,000 annuitized, this client would receive $8,810 annually for life.

The 10-year guarantee provides protection if you die early in retirement. If you pass away within 10 years of starting the annuity, payments continue to your beneficiary for the remainder of the guarantee period. So, if you die after five years, your beneficiary receives payments for five more years.  But if you outlive the 10-year guarantee period, there is no death benefit.

You can also choose joint life options that continue payments as long as either you or your spouse is alive. These typically offer lower payout rates because they’re expected to pay out longer, but they provide valuable protection for surviving spouses.

Payout rates vary significantly depending on when you made your contributions. Older contracts often have much higher payout rates. I’ve seen TIAA Traditional payout rates as high as 10% per year on older contracts from the 80s and 90s. 

TIAA’s long history and conservative management approach allows them to offer competitive rates to existing participants.

It’s important to understand that annuitization is an irrevocable decision. Once you exchange your account balance for the income stream, you cannot change your mind or access the principal. Additionally, these annuities are generally designed to be fixed with no guarantee of increased payments over time. 

This brings inflation risk into play more so than other investments.  However, the high baseline guaranteed income can stack on top of Social Security and allow for your more aggressive investments to compound longer.  Many are surprised that this can result in a higher legacy amount despite the lack of a death benefit.

Option 4: Transfer, Rollover, or Liquidation

The fourth option is to move your money out of TIAA Traditional entirely. Your ability to do this depends on what type of contracts you have.

If your TIAA traditional is in supplemental contracts (SRA, GSRA, and RCP), you have full liquidity. You can

  • Take the money out as a lump sum
  • Roll it into your own IRA
  • Transfer it to other investments within your 403(b) plan without restrictions.

However, if your money is in non-supplemental contracts (RA, GRA, or RC), you face liquidity restrictions because these contracts were funded primarily by employer contributions. For these illiquid contracts, you can use what’s called a Transfer Payout Annuity (TPA). A TPA provides your money in equal installments for a term determined by the type of contract.

  • RA Contracts: 10 payments over nine years
  • RC Contracts: 7 payments over 6 years
  • GRA Contracts: 5 payments over 4 years

If you elect to receive these payments as cash, each payment is taxable income. If you roll the TPA payments to an IRA or other qualified account, there are no immediate tax consequences.  You’ll need to check with TIAA to understand the specific rules for your contracts.

Many people choose this option because they’re frustrated with TIAA Traditional’s complexity or because they want to consolidate and simplify their retirement accounts. However, this decision deserves careful consideration because you’re giving up some unique benefits that are difficult to replicate elsewhere.

The Most Overlooked Option: Why Annuitization Deserves Serious Consideration

After working with hundreds of TIAA participants over the years, one pattern became clear.

Most people immediately gravitate toward option four (getting their money out) without seriously considering annuitization. This happens for several understandable reasons.

First, annuities have developed a negative reputation in the financial industry. Much of this stems from how annuities are often sold in the marketplace. Some salespeople are taking advantage of seniors and retirees, focusing on their own commissions rather than clients’ needs. This has created widespread distrust of anything labeled as an “annuity.”

Second, TIAA Traditional is genuinely complex, and many people simply want to move their money to something they understand better. The various contract types, liquidity restrictions, and payout options can feel overwhelming.

However, this rush to liquidate often overlooks the significant value that TIAA Traditional can provide in a well-designed retirement plan. Consider these advantages:

Bond Alternative

Over the past 10-15 years, traditional bonds have provided returns of less than 2% annually while experiencing significant volatility. TIAA traditional accounts typically earn 4% to 4.5% or more annually and never decrease in value. They can serve as an excellent bond alternative, allowing you to be more aggressive with your other investments.

Guaranteed Income Foundation

The annuitization option provides a guaranteed income foundation that reduces pressure on your other investments. With a baseline income from Social Security and a TIAA traditional annuity, you can afford to take more risk with your remaining investments to capture potential upside.

Superior Payout Rates

The payout rates available through TIAA traditional annuitization often exceed what you can obtain by purchasing commercial annuities in today’s market. The 8.81% payout rate in our example would be very difficult to replicate elsewhere.

Longevity Insurance

If you expect longevity for you or your spouse, the annuity continues paying regardless of how long you live. TIAA reportedly has clients in their hundreds who are still receiving payments.

The key is not to annuitize everything, but to consider using TIAA Traditional as one component of a diversified retirement income strategy. You might annuitize a portion of your TIAA Traditional to create a guaranteed income floor, while keeping other assets liquid for emergencies and growth potential.

Making the Right Choice for Your Situation

Choosing among these four options requires careful consideration of your complete financial picture. Here are some key factors to evaluate:

Income Needs

How much income will you need from your retirement accounts? If you have substantial Social Security and pension income, you might prefer to let the TIAA traditional continue growing tax-deferred. If you need current income, the interest-only or annuitization options might be more appropriate.

Other Assets

What other liquid assets do you have available for emergencies? If most of your wealth is in retirement accounts, maintaining some liquidity is important. But if you have substantial taxable investments or other liquid assets, you might be more comfortable annuitizing a portion of your TIAA Traditional.

Risk Tolerance

How comfortable are you with market volatility in your other investments? If TIAA Traditional serves as your bond allocation, you might be able to invest more aggressively elsewhere.

Legacy Goals

Do you want to leave assets to heirs? Annuitization reduces the assets available for inheritance, whereas the other options preserve more of the principal.  With that said, if you do live a long time, the benefits of annuitization could allow for your growth assets to compound without selling at the wrong time.

Tax Considerations

How will each option affect your overall tax situation? Large RMDs might push you into higher tax brackets, while annuity payments provide predictable taxable income.

Health and Longevity

Your health status and family history of longevity should influence your decision. If you expect a long retirement, annuitization becomes more attractive.

Conclusion

Your TIAA traditional account represents a valuable and unique retirement asset that deserves careful consideration. While the complexity can be frustrating, understanding your four main options – RMD/MDO, interest-only, annuitization, and rollover/liquidation – helps you make an informed decision that aligns with your retirement goals.

The most important takeaway is not to rush into liquidating your TIAA traditional simply because it’s complex. The guaranteed annuity rate and lifetime income options available through TIAA Traditional are increasingly rare in today’s financial marketplace. These benefits, combined with TIAA’s 150+ years of experience and conservative management approach, make TIAA Traditional a potentially valuable component of your retirement income strategy.

Before making any decisions, consider how each option fits within your overall financial plan. Think about your income needs, risk tolerance, legacy goals, and tax situation. If you’re unsure, consider working with a fee-only financial planner who can provide objective guidance without trying to sell you additional products.

Remember, you don’t have to choose just one option or make all decisions at once. You might use different options for different portions of your TIAA Traditional balance, or adjust your approach as your needs evolve in retirement. The key is understanding your choices so you can make decisions that support your long-term financial security and retirement goals.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

5 Retirement Strategies for Navigating Market Volatility in 2026

The current geopolitical tensions involving Iran have sent ripples through global markets. If you’re approaching retirement or have recently retired, you’re probably feeling some anxiety about your financial future. As someone who works with retirees daily, I’m seeing a familiar pattern emerge—the same concerns that surfaced during the 2020 COVID crisis and the 2008 financial meltdown.

Right now, we’re witnessing significant market volatility due to the Iran conflict. This conflict has effectively shut down the Strait of Hormuz—a critical waterway that accounts for about 20% of global oil consumption. This disruption is driving up energy costs, squeezing business margins, and creating uncertainty about future economic conditions.

For those planning to retire within the next year or two, or those who’ve recently entered retirement, this volatility raises serious questions about timing and financial security.  In this blog post, we’ll touch on five retirement strategies to help you navigate this current market volatility. 

The One-More-Year Syndrome: Why Market Volatility Affects Retirement Decisions

During my recent client reviews, I noticed something troubling. Many clients who were planning to retire this year are now considering pushing back their retirement. This phenomenon, which I call the “One-more-year syndrome,” isn’t new. I witnessed the same pattern during the 2020 pandemic when global markets crashed and again during the 2008 financial crisis.

The concern is understandable. Sequence of returns risk—the danger of experiencing poor market performance early in retirement—can significantly impact your long-term financial security. Historical data shows that retiring during major market downturns, such as the early 2000s tech crash or the 2008 financial crisis, can be particularly challenging for retirees who don’t have proper strategies in place.

However, here’s what many people don’t realize:

Even those who retired during the difficult 2022 triple bear market—stocks down 20%, bonds down 13–15%, and cash losing value—have seen a strong recovery from 2023 to 2025. The key is having the right retirement strategies to weather these storms.

Understanding the Current Market Impact

The Iran conflict is creating specific challenges that retirees need to understand. Oil prices have jumped over 40%, and this impacts everything from shipping costs to business profitability.

What makes this situation particularly concerning for retirement planning is the potential impact on inflation. Coming into 2026, markets expected the Federal Reserve to cut interest rates two to three times. However, if oil prices remain elevated and inflation becomes stickier, those rate cuts may not materialize. This uncertainty affects both stock and bond markets, creating the kind of volatility that can disrupt traditional investment strategies for retirement.

The situation is further complicated by the broader implications for artificial intelligence infrastructure, which requires enormous amounts of energy. The current administration’s focus on energy independence and the potential impact on China’s energy supply adds another layer of complexity to global markets.

Essential Retirement Strategies for Market Volatility

The Guardrails Framework

One of the most effective retirement strategies for managing market volatility is implementing a guardrails system. The Guyton-Klinger framework provides a structured approach to adjusting your spending during market downturns.

Here’s how it works:

If your withdrawal rate increases by 20% due to portfolio losses (not increased spending), you implement a 10% reduction in your expenses.

For many retirees, this strategy is quite manageable because they often have significant discretionary spending. Instead of taking three major trips per year, you might reduce it to two. While this requires some lifestyle adjustment, it’s far better than running out of money entirely.

The beauty of this approach is that it’s not arbitrary. It’s based on historical analysis of what works during extended market downturns. This systematic approach to managing market volatility helps remove emotion from financial decisions during stressful periods.

Building Your Cash and Fixed Income Buffer

Another crucial element of sound investment strategies for retirement is maintaining adequate liquidity. Building up a substantial cash and fixed income buffer allows you to avoid selling stocks during market downturns. This strategy proved invaluable during the 2008-2009 crisis, which took about 5 years for the market to fully recover.

The question isn’t whether to build this buffer, but how large it should be. Some retirees feel comfortable with two years of expenses in cash and fixed income. Others prefer four or five years for maximum peace of mind. This decision depends on your risk tolerance and how much market volatility you can psychologically handle.

Your buffer can include money market accounts, high-yield savings, CDs, short-term treasuries, or a combination of these vehicles. The key is having enough liquid assets to cover your expenses without forcing you to sell stocks at the worst possible time. This approach allows your equity investments time to recover while you live off your safer assets.

Reconsidering Annuities in Your Portfolio

Many people have negative associations with annuities, often for good reasons, given how they’ve been oversold in the past. However, when used appropriately, annuities can serve as an effective tool for managing market volatility in retirement portfolios.

The advantage of fixed annuities over traditional bonds is the elimination of interest rate risk. While bond prices can decline when interest rates rise, a fixed annuity locks in your value each year. More importantly, annuities can be converted into guaranteed lifetime income streams, which reduces the pressure to sell stocks during market downturns.

This is particularly relevant for managing market volatility. Why? Because it provides a foundation of guaranteed income that doesn’t fluctuate with market conditions. Whether you’re considering a private annuity from companies like Lincoln or Principal, or you have access to institutional options like TIAA, these tools can provide valuable stability during uncertain times.

Alternative Income Strategies

Sometimes the best retirement strategies involve thinking outside traditional investment approaches. Part-time work, for instance, can significantly reduce pressure on your investment portfolio during volatile periods. This doesn’t mean returning to a stressful full-time career, but rather finding enjoyable, flexible work that provides additional income.

Many retirees find fulfillment in consulting work, retail positions, or service jobs that keep them active and social while providing financial benefits. The additional income reduces the amount you need to withdraw from your portfolio, giving your investments more time to recover from market downturns.

Strategic Social Security Timing

Your Social Security claiming strategy can also serve as a tool for managing market volatility. If you had planned to delay benefits until age 70 but find yourself in a prolonged market downturn, claiming earlier can reduce pressure on your investment portfolio.

There’s even a little-known provision that allows you to start Social Security benefits before full retirement age, but then stop them at full retirement age.  This allows you to capture delayed retirement credits up until age 70. This flexibility can be valuable if market conditions improve and you want to return to your original strategy of maximizing lifetime benefits.

The DURP Framework: Staying Disciplined During Uncertainty

The foundation of all effective retirement strategies is what I call the DURP framework: Disciplined, Unemotional, Repeatable Process. This approach is based on having a clear investment policy statement that guides your decisions regardless of market conditions.

Think of how major university endowments operate. They have clear goals, defined risk tolerance based on those goals, and specific asset allocation targets. When they need to generate cash flow, they sell from whatever asset class has performed best recently and is overweight in their portfolio.

During strong market years like 2025, when stocks returned about 16%, and bonds returned 7%, you would trim your equity allocation to generate additional cash flow. Conversely, during down markets like 2008, when stocks fell 37%, but bonds gained 6%, you could sell bonds to meet your cash flow needs while allowing stocks time to recover.

This systematic approach to managing market volatility removes emotion from the equation. It ensures that you’re buying low and selling high rather than the other way around.

What is Retirement Planning in Today’s Environment?

What is retirement planning in an era of increased market volatility and geopolitical uncertainty? It’s about creating flexible, robust strategies that can adapt to changing conditions while protecting your financial security.

Modern retirement planning must account for longer lifespans, lower expected returns, higher healthcare costs, and increased market volatility. It’s no longer sufficient to simply accumulate assets and hope for the best. Today’s retirees need sophisticated strategies that address sequence-of-returns risk, inflation protection, and income sustainability.

The key is to work with professionals who understand these complexities and can help you implement appropriate strategies before you need them. This can include:

  • Setting up guardrails
  • Building proper cash buffers
  • Optimizing your Social Security strategy

The time to plan is before the crisis hits.

Moving Forward with Confidence

While the current market volatility related to the Iran conflict is concerning, it’s important to remember that markets have weathered similar storms before. The key is having proper retirement strategies in place and the discipline to stick with them during challenging periods.

If you’re approaching retirement with over a million dollars in savings and feeling uncertain about how to navigate these turbulent times, you’re not alone. The strategies outlined here—from guardrails frameworks to cash buffers to strategic Social Security timing—have helped countless retirees successfully navigate market volatility.

The most important thing is to avoid making emotional decisions based on short-term market movements. Instead, focus on building a robust plan that can adapt to changing conditions while protecting your long-term financial security. Remember, you can’t time the markets perfectly. However, you can prepare for volatility and position yourself to weather whatever storms may come.

Managing market volatility in retirement isn’t about predicting the future. It’s about being prepared for multiple scenarios and having the flexibility to adapt as conditions change. With proper planning and professional guidance, you can maintain confidence in your financial future regardless of what global events may unfold.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel. This is for general education purposes only and should not be considered as tax, legal, or investment advice.

One More Year Syndrome: The Hidden Trap Keeping You from Retirement

If you’ve been researching retirement lately, you’ve probably encountered content about something called “one more year syndrome.” This concept has been gaining traction across YouTube channels, podcasts, and financial forums, but what exactly is it, and why should you care?

One more year syndrome describes the tendency for pre-retirees to continuously postpone their retirement by convincing themselves they need to work “just one more year.” Sound familiar? You’re not alone. This pattern affects countless people who are financially ready to retire but keep finding reasons to delay.

What Is One More Year Syndrome?

One more year syndrome occurs when you give yourself excuses to work another year, even though you have the financial capacity to retire. These excuses might sound like:

  • “I need to add more money to my portfolio.”
  • “The market valuations look scary right now.”
  • “Inflation is making me nervous.”
  • “There are tariffs looming on the horizon.”
  • “Healthcare costs before Medicare eligibility worry me.”
  • “I don’t know what I’ll do with my time in retirement.”

The truth is, there’s always something uncertain on the horizon. Think about any time you’ve challenged yourself to try something new – that feeling of unease before stepping into uncharted territory is completely natural. Just like a child reciting a poem in front of their peers feels terrified for weeks beforehand, but once they’re doing it, they realize it wasn’t so scary after all.

For many pre-retirees, you’ve spent your career being the go-to person. You’re the problem solver, the one putting out fires, the person others turn to for advice and help. You have meaning, purpose, and respect in your field and community. The idea of leaving that behind for an uncertain next chapter can feel genuinely frightening.

Understanding the Content Creator’s Angle in Retirement Planning

Here’s something important you need to understand: many people creating content about one more year syndrome are retirement planners and financial advisors. They want people to retire, or at least seriously consider retiring soon, because that creates business opportunities for them.  This is coming from a fellow content creator and retirement planner!  (At least I’m upfront about it).

This doesn’t mean their advice is wrong, but you need to understand the incentive structure. When you see content saying, “don’t work another year, you’re wasting your time, stop slaving away for the man,” ask yourself who is packaging that message and what their angle might be.

Every content creator has an angle. The key is being aware of where the content is coming from so you can evaluate it appropriately. This awareness doesn’t invalidate the message – it might still be exactly what you need to hear – but it helps you consume it more thoughtfully.

Why Mortality Makes Us Rethink When to Retire

Sometimes life provides wake-up calls that force us to reconsider our retirement timing. Recently, a podcast listener reached out to see if he could retire earlier than he had planned.  The reason?  He lost 3 of his close friends over the last year. That kind of mortality reminder hits differently than abstract retirement planning discussions.

I remember back in my TIAA days, I worked with a sweet math professor looking for help with retirement planning.  She planned to work until 65 to become eligible for Medicare, and she was incredibly excited about traveling the world. For three years, her excitement built with each planning meeting. Then, unexpectedly, she passed away at 64 – just months before her planned retirement.

These stories aren’t meant to create fear, but they highlight an important reality: time isn’t guaranteed. When you see people around you pass away, get sick, or become frail, it naturally makes you reevaluate what you’re doing today. This response is completely normal and healthy.

Three Questions to Evaluate Your Retirement Readiness

To address one more year syndrome effectively, ask yourself these three critical questions:

Question 1: The Financial Standstill Test

Assuming nothing changed financially over the next year – even if the markets didn’t cooperate and your portfolio balance stayed exactly the same 12 months from now – would you still work that one more year?

What if you had a crystal ball showing your net worth wouldn’t change despite working another year, would you still choose to work? If the only reason you’re working is to add more money to your portfolio, even though you already have the capacity to retire today, you might be suffering from one more year syndrome.

Question 2: The Money-No-Object Test

If money weren’t an issue and you didn’t need to add more to your portfolio, would you still be doing what you’re doing today?

Remember, retirement doesn’t have to mean sitting in a rocking chair sipping drinks all day. Maybe you’d work occasionally as a consultant, volunteer, travel, or start a nonprofit. But the question is: if you didn’t need your job financially, would you still choose to spend most of your day and week doing that job?

If the answer is yes, and you can still pursue other important activities and relationships, then keep working. But remember – nothing is guaranteed.

Question 3: The Five-Year Horizon Test

If you were told today that you had five more good, healthy “go-go” years left, would you still work that one more year?

How would this knowledge change your decision about working another year?

Finding Purpose Beyond Traditional Retirement

The concern about losing purpose in retirement is valid and important. In 1 Peter 4:10, it says, “Each one should use whatever gift he has received to serve others, faithfully administering God’s grace in its various forms.”

This doesn’t suggest that retirement is bad; rather, it asks whether you’re using your gifts to serve others. If work is preventing you from doing that, maybe you should consider retiring sooner than planned. However, if you have no purpose planned for retirement, you’re likely to feel lost.

Retirees who feel lost don’t feel good, and people who don’t feel good aren’t enjoyable to be around. You need purpose, meaning, fulfillment, and energy in retirement. But there are many ways to make an impact and put your time, talents, and treasures to work beyond traditional employment.

Making Your Decision About One More Year Syndrome

Here’s what to take away from this discussion:

First, when you encounter content about one more year syndrome, understand where it’s coming from. Consider who is delivering the message, how they’re packaging it, and what their angle might be. Everyone has motivations, and being aware of them helps you evaluate advice more effectively.

Second, recognize that despite potential biases, this message might still be exactly what you need to hear today. Time isn’t guaranteed, and you can’t predict how many good years you have remaining. This reality has played out countless times throughout retirement planning careers.

Third, use those three questions to guide your thinking. They might lead you to conclude that you should continue working – maybe for five more years instead of one. Or you might realize you hate what you’re doing and need to figure out a plan to transition now, even if it’s not full retirement.

If money isn’t the issue and you dislike your job, it’s probably time to reevaluate what you’re doing. There are plenty of ways to make an impact and use your skills meaningfully.

Moving Forward with Your Retirement Decision

One more year syndrome is real, and it affects many people who are actually ready to retire but keep finding reasons to delay. The key is honest self-reflection about your true motivations.

Are you working another year because you genuinely need the money, or because you’re afraid of the unknown? Do you love what you do and find meaning in it, or are you staying because it feels safe and familiar?

Your retirement planning should go beyond financial calculations to include questions of purpose, meaning, and how you want to spend your remaining healthy years. Whether you decide to retire now, work one more year, or continue for several more years, make sure that decision is based on thoughtful consideration rather than fear or habit.

The goal isn’t to minimize your retirement years but to maximize the meaningful use of whatever time you have left. Sometimes that means working longer, and sometimes it means taking the leap into retirement sooner than you initially planned.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel. This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Should You Annuitize in Retirement?  4 Surprising Truths About Annuities

Let me start with complete transparency: I don’t sell annuities, I don’t receive commissions from them, and frankly, I dislike most annuity products on the market. They’re often complicated, expensive, and in many cases, they’re sold rather than planned.

My skepticism runs deep. Nearly 18 years ago, in my first financial role out of college, there was a veteran in my office who had one solution for everything: annuities. Client had an IRA rollover? Annuity. Extra money beyond their 401 (k)? Annuity. Worried about market volatility? You guessed it – annuity. This approach made me sick and shaped my career trajectory as a fee-only planner.

But this isn’t about bashing annuities like Ken Fisher does. When used correctly – specifically when used the way they were designed to be used – annuities can create outcomes that surprise even sophisticated investors and retirees. After 17-18 years of retirement planning, I’ve learned that bringing bias to the table and simply saying “annuities are bad” isn’t helpful.

Today, I want to walk you through four surprising benefits of annuitizing a portion of your fixed income and how this fits into well-designed retirement income planning.

The big takeaway? Retirement planning isn’t just about growing assets anymore – it’s about turning those assets into reliable, efficient, and sustainable income.

1. Lower Stress During Market Volatility: The Emotional Game-Changer

Here’s something most people don’t understand until they experience it firsthand: having an annuitized portion of your portfolio dramatically reduces stress during market downturns in retirement.

Consider this reality: if you retire at 60 and plan to live until 90, that’s a 30-year time horizon. Historically, there’s a 20% market downturn or bear market approximately once every five years. This means you could experience five or even six major bear markets during your retirement.

Bear markets hit differently when you’re retired.

When you’re accumulating wealth, you might even feel somewhat positive about a bear market – subconsciously, you know you’re buying shares at discounted prices. It’s uncomfortable, but manageable. When you’re withdrawing money for living expenses, volatility can feel nauseating.

I’ve been working with retirees for 18 years. In that time, I’ve witnessed very sophisticated retirees panic during downturns by bailing out of well-thought-out, diversified strategies right in the middle of a bear market. I’ve watched vacations get ruined, and couples argue over whether they should cut spending during market downturns.

But here’s what I’ve never seen:

I’ve never had a client with guaranteed lifetime income layered on top of other income sources – whether Social Security or a pension – say they regret securing that income stream. It’s always the opposite.

During COVID in 2020, during the 2022 downturn, and going back to 2008, when markets dropped 20% or more, clients with annuitized income consistently told me: “I’m so glad I have that guaranteed income check showing up every month.”

That predictability changes behavior, and in retirement, behavior matters infinitely more than spreadsheets.

Yes, you can hold bonds or cash for safety, but 2022 reminded us that bonds can fall double digits, and cash loses purchasing power over time. Your safe money isn’t about maximizing returns – it’s about minimizing emotional risk. And emotional risk in retirement is incredibly expensive.

2. Reduced Withdrawal Pressure: The Mathematical Advantage

This is where the math really shines, and it’s one of my favorite impacts of annuitization.

Most retirees follow traditional withdrawal frameworks. Let’s use the 4% rule as an example. Say you have $2 million invested and need $80,000 annually – that’s exactly 4%, which should theoretically work fine.

Now let’s see what happens with partial annuitization:

Instead of relying solely on systematic withdrawals, let’s say you annuitize $500,000 of your fixed income allocation. Using a conservative 7% payout rate (and I’ll explain why this is conservative in a moment), that $500,000 generates $35,000 annually in guaranteed income.

Your remaining portfolio balance is now $1.5 million, but it only needs to produce $45,000 because you’re receiving $35,000 from the lifetime income stream. Divide $45,000 by $1.5 million, and you get an effective 3% withdrawal rate on the remaining portfolio.  That reduced withdrawal rate on the invested balance could allow for better long-term growth, all because you maximized the cash flows from your ‘safe bucket.’ 

That difference matters enormously over the long term.

Why can annuities offer higher payout rates than bonds? Two reasons: mortality credits and longevity pooling. You’re not just earning bond-like returns – you’re benefiting from pooled longevity risk. Some people in the pool won’t live very long; others will live much longer. This pooling effect creates higher payout rates than you could achieve with individual bonds or CDs.

I broke down Marilyn’s real case study on YouTube: She was earning approximately 8.6% on her TIAA traditional annuity – well above the conservative 7% I used in the example above.

Surprisingly, partial annuitization increased the ending ‘legacy’ to her two adult children!  Despite dropping her liquidity after annuitizing that portion of her assets.

This higher payout rate reduces strain on your equity portfolio, which means:

  • Lower sequence of returns risk
  • Fewer forced sales during market downturns
  • More compounding potential for long-term growth

Annuities don’t just create income – they reduce selling pressure on everything else. This structural shift is often misunderstood but incredibly powerful.

The timing of this strategy matters significantly. We’ve had three consecutive years of bull market returns – double digits in the 20% range for two years, then 16% last year. But who knows how much longer this will continue?

We had about 11-12 years between 2008 and 2020 with minimal bear markets, but then just a two-year gap before the 2022 downturn. Markets are cyclical, and short-term, they’re driven by emotion and irrationality.

The question is:

  1. What’s your plan for the next bear market?
  2. Can partial annuitization help you navigate it emotionally while avoiding the need to sell riskier assets with better long-term growth potential?

3. Higher Legacy Potential: The Counterintuitive Truth

This surprises people more than anything else, and honestly, it shocked me initially, too. I spent considerable time manipulating financial planning software because I didn’t believe the results. But the math is sound and makes perfect sense once you understand it.

Annuitizing a portion of your assets can actually result in higher legacy amounts, not lower ones.

This shocks people because the common assumption is: “If I annuitize, my kids lose out because that money isn’t liquid anymore.” While liquidity does disappear with annuitization, if longevity plays out in your favor – which is the entire purpose of annuitization – the results can be dramatically different.

Here’s why: If you plan to live into your 80s or 90s, the annuity keeps paying throughout that entire period. Meanwhile, because you’ve reduced withdrawal pressure on your equity portfolio, those riskier assets with higher long-term growth potential can compound more efficiently.

In stress tests I’ve run with real case studies, including Marilyn’s situation, the numbers consistently support this outcome. For Marilyn, the breakeven point was approximately 81 years old. Beyond that point, the legacy outcome was significantly higher with partial annuitization than without it.

Legacy’s biggest threat

The biggest threat to legacy isn’t annuitization – it’s poor returns early in retirement. Poor sequence of returns risk combined with higher withdrawals damages portfolios far more than partial annuitization ever could.

If you retire into a bear market, the value of reduced withdrawal strain becomes even more powerful. I’ve seen this play out with clients who annuitized portions of their portfolios 10-15 years ago. They’ve been able to take full advantage of the bull run we’ve enjoyed since 2008, with their remaining investments growing much more efficiently because they weren’t forced to sell during downturns.

4. True Longevity Insurance: Beyond Social Security and Bonds

Most retirees over-allocate to bonds because they fear volatility. But bonds don’t solve longevity risk – they just reduce volatility temporarily.

If you live 25 or 30 years in retirement, how long will that safe bond allocation actually last?

Longevity risk is particularly real for people who take care of themselves, have good genetics, and access to excellent healthcare. As modern medicine continues to evolve and AI advances rapidly, life expectancies may increase significantly. Even if the most optimistic predictions don’t materialize, many people will still live well into their 90s or beyond.

Social Security provides powerful longevity insurance, but for many high-income retirees, it won’t cover enough expenses. This is where partial annuitization becomes valuable – it can convert part of that underutilized fixed income allocation into maximized income streams that protect against longevity risk.

The annuity will pay whether you live to 85 or 105.

I see the bond or fixed income bucket consistently underutilized by retirees. People are often afraid to commit large lump sums to annuities because liquidity disappears. This is exactly why having a comprehensive plan and strategy is crucial – this isn’t an all-or-nothing decision.

Liquidity matters. Health matters. Legacy goals matter. Interest rates, payout rates, specific annuity contracts, and terms all matter significantly.

This isn’t about annuitizing everything – it’s about intelligently designing the fixed income sleeve of your portfolio, building an income floor, creating emotional stability, and giving growth assets room to compound. That’s true retirement income planning.

Four Critical Questions to Ask Yourself

If you’re approaching retirement or recently retired and wondering whether partial annuitization makes sense, consider these four questions:

1. What is my true risk tolerance in retirement?

Really internalize this. How do you actually feel about risk – not today while you’re still working, but when you’re actually retired and watching your portfolio fluctuate? If you are retired, how do you feel when the market drops 10%, 20%, or even 30%?

2. Do I expect longevity in my family?

Consider both yourself and your spouse. Do you have good genetics, take care of your health, and have access to quality healthcare? Are you planning for the possibility of living 25, 30, or more years in retirement?

3. What percentage of my expenses are covered by guaranteed income sources?

If Social Security only covers 25% of your total expenses, that’s not substantial coverage. You could be much more subject to the sequence of returns risk than someone with higher guaranteed income coverage.

4. Am I reacting emotionally to the word “annuity,” or am I evaluating strategically?

Are you considering annuities as part of an overall retirement income plan, or are you dismissing them based on preconceived notions?

If your income stability ratio is low – meaning most expenses must come from portfolio withdrawals – you’re much more exposed to sequence risk. This doesn’t automatically mean you need annuities, but it absolutely means you should evaluate them objectively.

This is especially true if you have access to quality annuities, such as TIAA traditional products, where older vintages can offer very attractive payout rates. Before surrendering or transferring these products, understand the crediting rates, liquidity restrictions, income options, and payout rates.

The Bottom Line: Building Resilient Retirement Income

Retirement income planning isn’t about collecting the highest returns – it’s about building a resilient retirement income plan that can weather various economic storms while providing the lifestyle you want.

People who succeed in retirement aren’t those chasing performance; they’re the ones who design their plans intelligently, balancing growth potential with income security.

The mathematical advantages of partial annuitization – reduced withdrawal pressure, higher effective payout rates through mortality credits, potential legacy benefits, and true longevity protection – can create outcomes that surprise even sophisticated investors.

But remember: this strategy requires careful planning, appropriate product selection, and integration with your overall financial plan. The goal isn’t to annuitize everything, but to strategically design your fixed-income allocation to deliver maximum benefit across all your retirement objectives.

As we face potential market volatility ahead – with tariff uncertainties and the conflict in Iran – having a portion of your income guaranteed can provide the emotional stability needed to let your growth investments do what they do best: grow over time.

The question isn’t whether annuities are good or bad in isolation. The question is whether partial annuitization can help you build a more resilient, less stressful, and ultimately more successful retirement income plan.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Retirement Planning Opportunities If You’re in the Top 20% of Savers (Ages 55–70)

If you’ve ever Googled “retirement savings by age,” you’ve probably seen those benchmark numbers that either made you panic or feel like you’re crushing it. But here’s the thing – both reactions might be completely wrong.

Understanding retirement savings by age is something many people get hung up on, but the reality is that these average numbers rarely tell the complete story. Today, we’ll dive into real data from major financial institutions and explain why, if you’re reading this, you’re probably already in the top tier of savers.  And if you’re in that top tier, we’ll discuss specific planning opportunities to help you optimize your retirement. 

What the Average Retirement Savings Data Really Shows

Let’s start by looking at what the major studies actually reveal about retirement account balances across different age groups.

401k Balance by Age: Fidelity’s Latest Numbers

Fidelity releases quarterly benchmarking studies that track average retirement account balances by age. Their data shows that for people in their peak earning years (55-70), the average 401(k) balance hovers around $250,000.

Financial planner in Chattanooga, TN

But here’s the problem with this data: it only includes accounts held at Fidelity. It completely excludes external accounts, creating a major blind spot. There are no taxable brokerage accounts, no HSAs, and no retirement accounts held at other institutions, such as Vanguard or Schwab. This means Fidelity’s numbers aren’t really representative of the entire U.S. retirement landscape – especially not for people who are serious about their financial planning.

The Federal Reserve’s Complete Picture

The Federal Reserve’s Survey of Consumer Finances, conducted every few years, gives us the closest thing to a national financial scoreboard. The 2022 data reveals some eye-opening statistics.

For households in the 55-64 age range:

  • About 8% have retirement account balances between $500,000 and $1 million
  • Roughly 9% have over $1 million in retirement accounts
  • This means approximately 17% of U.S. households in this age group have retirement savings exceeding $500,000

If you’re reading this article and have accumulated at least $500,000 in retirement accounts by your late 50s or early 60s, you’re already in the top 20% nationally. Many readers are likely in that top 10% tier with over a million dollars saved.

The Fed’s survey includes a broad sample of American households – from lower wealth to middle class to high net worth families. Many of the households surveyed may have very little, if any, assets in 401(k)s or IRAs, which skews the averages significantly lower.

Empower’s More Complete Data Set

Empower’s data provides both average and median retirement account balances, which matters because averages can be skewed by ultra-high savers with multiple seven-figure accounts.

For people in their 50s and 60s, Empower shows:

  • Average retirement account balance: roughly $1 million
  • Median balance: about 50% of that average

What makes Empower’s data more valuable is that it doesn’t just include accounts held directly with them. It also incorporates retirement accounts imported through their personal dashboard tool. If someone has accounts at Fidelity, Vanguard, or other institutions, those balances get aggregated into the study, making it more representative of people who actively manage their finances across multiple platforms.

However, even Empower’s data has limitations – it still doesn’t include other retirement assets like taxable brokerage accounts, business investments, or real estate.

Why You’re Probably Not Average

Here’s the reality: if you’re actively researching retirement savings by age and reading detailed financial content, you’re already demonstrating behavior that puts you in a completely different category than the “average” American saver.

The average retirement savings by age data includes everyone, including people who have never opened a 401(k), those who cash out their retirement accounts when changing jobs, and households that prioritize other financial goals over retirement savings.

But you’re different. You’re likely someone who:

  • Has built substantial retirement account balances
  • Maintains accounts across multiple institutions
  • Has diversified beyond just retirement accounts into taxable investments
  • Owns real estate or business assets not captured in these studies

Someone might have $400,000 in a 401(k), but another $1-2 million in taxable brokerage accounts or $3 million in real estate investments. If you’re only comparing retirement accounts, you’re missing half the picture.

This is the key point: if you’re consuming this type of content, you’re probably already in that top 20% of households. You’ve likely saved at least $500,000, and many readers have accumulated seven figures or even multiple seven figures for retirement. You’re playing a completely different retirement game than the average American.

Essential Retirement Planning Strategies for Top-Tier Savers

When you’re in the top tier of savers, your biggest risk isn’t running out of money – it’s retirement planning inefficiency. Here are the critical strategies you need to consider:

Tax Planning: Your Biggest Opportunity

Taxes can actually be one of your biggest expenses in retirement – often ranking as the number one, two, or three largest annual expenses for retirees.

Large pre-tax account balances mean large future required minimum distributions (RMDs). These large RMDs can potentially push you into higher income tax brackets, trigger higher taxes on Social Security income, increase capital gains rates, and activate other hidden taxes. These tax hits compound over time.

If you retire early, you may have lower income years before RMDs kick in at age 73 or 75. This window represents one of the best tax planning opportunities of your lifetime–what’s called the “Roth conversion window.”

Maximizing Roth Conversion Strategies in Early Retirement

During your early retirement years, before RMDs begin, you have the opportunity to strategically convert pre-tax retirement funds to Roth accounts. This means paying taxes now at potentially lower rates to minimize the impact of those ballooning RMDs later.

Roth conversion strategies can also help you:

  • Minimize IRMAA surcharges (hidden taxes on Medicare premiums based on income)
  • Make Social Security income more tax-efficient
  • Create tax-free legacy assets for your heirs

Once this conversion window closes, it shuts for good, making this timing critical for long-term tax efficiency.

Optimizing Your Retirement Withdrawal Strategies

When you have substantial assets across multiple account types–taxable accounts, tax-deferred accounts, and tax-free accounts–the order you withdraw money matters enormously for the longevity of your retirement plan.

The classic approach follows this sequence:

  1. Taxable accounts first
  2. Tax-deferred accounts second
  3. Tax-free accounts last

This default strategy makes sense for many people, but it’s not always optimal. Sometimes it makes more sense to tap Roth accounts first and let tax-deferred accounts continue compounding. Other times, a multi-pronged approach works best–taking baseline distributions from taxable accounts while filling remaining income needs from tax-deferred accounts, even before RMDs begin.

The key insight: retirement withdrawal strategies shouldn’t follow a one-size-fits-all approach. Each year brings a new tax situation that needs to be evaluated and optimized based on your specific circumstances.

Investment Strategy: Risk Capacity vs. Risk Tolerance

Most retirees and many financial advisors focus solely on risk tolerance–how aggressive you feel comfortable being emotionally. But for higher net worth households, we need to discuss something different: risk capacity.

Understanding the Difference

Risk tolerance is emotional and psychological. It’s about how you feel when the market drops 20%. Do you panic? Can you sleep well at night? Can you stay disciplined?

Risk capacity is different – it’s not about feelings, it’s about what your plan can mathematically survive. Can you afford to take on risk in retirement?

Here’s the counterintuitive part: a retiree with a smaller portfolio may actually have less risk capacity than someone with a larger balance.

A Real-World Example

Consider a retiree with $500,000 who needs $30,000 annually (6% withdrawal rate). If the market drops 25%, their portfolio becomes $375,000, but they still need that $30,000. Now their withdrawal rate jumps to 8% – entering the danger zone where retirement plans can fail due to the sequence of returns risk.

Compare this to someone with $2 million who needs $80,000 annually (4% withdrawal rate). If their portfolio drops 25% to $1.5 million, their withdrawal rate only increases to 5.3%. They have margin for error. They can reduce withdrawals, skip inflation adjustments, rebalance, or even take advantage of the downturn.

This is risk capacity: how much volatility can your plan absorb before forcing you to make bad financial decisions?

Where You Hold Investments Matters

Asset location is different from asset allocation. Asset allocation is what you’re invested in. It’s your mix of stocks, bonds, real estate, and cash. Asset location is where you hold those investments.

When you have substantial balances across taxable, tax-deferred, and tax-free accounts, where you locate specific investments can significantly impact your after-tax returns.

The Tax Drag Problem

Taxable accounts face ongoing tax drag. Investments may pay quarterly dividends, generate interest income, or distribute capital gains even when you’re not selling anything. When you’re in higher tax brackets, this drag becomes significant and represents one of the most overlooked ways wealth gets eroded–not from market performance, but from unnecessary taxes.

If your taxable account holds high-yield bonds, REITs, and high-turnover funds, you might pay substantial taxes annually even if you’re not spending that income. Meanwhile, your IRA and Roth accounts might be better locations for these less tax-efficient investments.

The goal of asset location is simple: ensure your taxable accounts aren’t dragging down your net after-tax returns. You don’t just need good performance. You need good after-tax performance. It’s not about what you earn; it’s about what you keep.

Legacy Planning for High-Net-Worth Families

If you’re in the top tier of savers, there’s a good chance you won’t spend down all your assets, even if your goal is to “die with zero.” This means you’re optimizing not just for lifetime income, but also for legacy–specifically, tax-efficient legacy.

This becomes especially important if your heirs are high earners themselves: doctors, entrepreneurs, attorneys, or other professionals. What you leave behind matters significantly.

Leaving a pre-tax IRA or 401 (k) to high-income beneficiaries creates a different tax impact than leaving a Roth account or a taxable brokerage account. The most effective planning involves being strategic about which assets to spend aggressively during your lifetime versus which to preserve for beneficiaries.

The Real Takeaway for Top-Tier Savers

If you’ve built substantial wealth and find yourself in the top 20% of U.S. households, your retirement plan is no longer about chasing returns or worrying about having “enough” money. Instead, your focus should shift to:

  • Maximizing retirement plan efficiency
  • Controlling the timing and tax impact of distributions
  • Minimizing lifetime taxes through strategic planning
  • Managing Medicare thresholds and IRMAA surcharges
  • Optimizing Social Security income timing and taxation
  • Taking advantage of Roth conversion windows
  • Planning for tax-efficient legacy transfer

Once you’ve done the hard part–saving and investing to reach financial independence–the game becomes about keeping more of what you’ve built. The strategies that got you to this point aren’t necessarily the same ones that will optimize your wealth throughout retirement.

The Bottom Line

Stop comparing yourself to average retirement savings by age. If you’re actively planning and have accumulated substantial assets, you’re already playing in a different league. Your focus should be on advanced strategies that maximize the efficiency of the wealth you’ve built, not on whether you’re “keeping up” with benchmarks that don’t reflect your reality.

Remember, retirement planning for high-net-worth individuals isn’t about accumulating more. It’s about optimizing what you have for the best possible outcomes throughout your retirement years and beyond.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Retirement Planning for Longevity: What If You Live to 100?

What if you retired at 60 and lived to 100? That’s a 40-year time horizon in retirement – meaning you could be retired longer than you were in the workforce. While this sounds amazing on paper, it brings about an entirely different set of challenges that most people aren’t prepared for.

Most people planning for retirement think they need their portfolio to last 15, 20, or maybe 25 years. Some conservative planners might even stretch it to 30 years. But here’s the reality: if current trends in technology and medicine continue, living to 100 might not be as far-fetched as it seems.

With AI and technology potentially helping us live longer, retirement planning for longevity becomes critical. You don’t need to save less because you might live longer – you need to be more thoughtful about how you set up your retirement plan. Longevity will be one of the biggest risks for people retiring in 2026 and beyond.

Let’s explore five specific retirement planning considerations if you’re planning for a 40-year retirement.

Building Retirement Income Planning That Lasts 40 Years

The foundation of any solid retirement plan is creating paychecks in retirement. Effective retirement income planning focuses on generating cash flow because assets that don’t generate income won’t help you pay your bills.

Your retirement plan isn’t just about your portfolio – it’s about building lifetime income that never runs out. Retirement becomes much easier when your baseline necessities and fixed expenses are covered by guaranteed income sources. People who have this foundation sleep well at night, especially when markets are volatile.

Maximizing Social Security Benefits

Social Security will likely be the biggest guaranteed lifetime income stream for most retirement plans. When considering retirement planning for longevity, delaying your benefits until age 70 becomes even more valuable. This is especially important for married couples: delaying the larger benefit maximizes the surviving spouse’s income.

Remember, when one spouse dies, the surviving spouse doesn’t receive both Social Security checks. They receive the larger of the two benefits. If you’re planning for one spouse to potentially live until 100, maximizing that larger benefit becomes critical.

Pension Survivor Benefits

If you have a pension, survivor benefit options require careful consideration. Many people want to maximize what they receive during their lifetime and select a 25% or 50% survivor benefit option.  Sometimes, NO survivor benefit is selected at all. But if one spouse passes away, not only does Social Security drop, but the pension could also drop by 50% or more.

This results in a significant reduction in income for the surviving spouse, who might live another 15-20 years. When planning for longevity, protecting the surviving spouse’s income becomes paramount.

The Role of Annuities in Guaranteed Retirement Income

Annuities have become a four-letter word for many people, but they deserve consideration in retirement planning for longevity. While there are bad products and bad salespeople in this space, the concept of guaranteed income has real value.

Here’s what’s interesting: clients who have annuities never say they wish they didn’t have that guaranteed paycheck coming in. It’s usually the opposite – during market volatility, people wish they had something safe and guaranteed that they could never outlive.

Consider breaking down your expenses into needs, wants, and wishes – or simply fixed expenses and discretionary expenses. Then figure out what percentage of your fixed expenses are covered by guaranteed income sources. If Social Security covers everything, you might not need additional guaranteed income. But if your guaranteed sources only cover 30-40% of your total expenses, that could be concerning during market downturns.

Optimizing Your Retirement Portfolio Allocation for Longevity

Traditional thinking pushes retirees into conservative portfolios because they’re “living on their portfolio.” But you’re not living on 100% of your portfolio in year one – you might be withdrawing 4-7% annually. Being too conservative creates other risks, particularly inflation and longevity risk.

The Inflation Challenge

The longer you live, the more inflation compounds. Over a 40-year retirement, inflation becomes a massive risk. The best hedge against inflation is equities – traditional stocks in your portfolio. If you trim your equity allocation too much, you might not keep pace with inflation, which could be a bigger risk than market volatility.

Rethinking the 60-40 Portfolio

The traditional 60% stocks, 40% bonds allocation has been popular for retirees, but you need to stress-test it for a 40-year retirement. Bill Bengen, the creator of the famous 4% rule, recommended a minimum of 50% in stocks, with as close to 75% stocks and 25% fixed income as possible for optimal results.

When stress testing retirement portfolio allocation strategies for extended retirements, a 60-40 portfolio sometimes carries more risk than a slightly more aggressive allocation. This isn’t about putting everything in AI stocks – it’s about a well-diversified pool of equities that can hedge against inflation and longevity concerns.

Implementing Guardrails

If you choose a more aggressive allocation, you face sequence of returns risk – the danger of a bear market in your first few years of retirement. Since nobody can time the market, guardrails become essential.

Guyton and Klinger developed four decision rules for portfolio management:

  1. The inflation rule
  2. The prosperity rule
  3. The portfolio rescue rule
  4. The portfolio management rule

Following these rules throughout retirement can dramatically increase your starting withdrawal rate while reducing the risk of running out of money. The most dangerous retirement portfolio might be the one that feels safe on paper but quietly lags behind inflation for 35-40 years.

Long Term Care Planning: Protecting Your Future

Nobody likes thinking about getting old and frail, but Father Time is undefeated. Some of us will need help with daily living activities at the end of life. Long-term care planning isn’t just about buying insurance – it’s about having a comprehensive plan.

The Reality of Care Needs

About 70% of people will need some sort of care, but the duration and type vary greatly. It might be cognitive or physical care lasting two years or ten years. This uncertainty makes planning challenging but necessary.

Beyond Just Insurance

Long-term care planning involves several strategies:

  • Dedicated pools of funds
  • Long-term care insurance
  • Home equity utilization
  • Self-funding approaches

Even Warren Buffett has long-term care insurance, despite having enough wealth to self-fund care for 100 years. Why? He doesn’t want his heirs to go through a fire sale of investments to pay for care. Insurance creates a dedicated pool of funds and allows caregivers to hire help.

The Burden Factor

One common concern among retirees is: “I never want to be a burden on my loved ones.” Many people have plenty of money for retirement and care expenses, but are afraid to spend because they worry about unexpected healthcare costs.

Long-term care insurance can give people the freedom to spend their assets and enjoy retirement, knowing they have protection against care expenses. It removes the financial and logistical burden from spouses and adult children who are also worried about their own financial security.

Understanding Retirement Spending Phases

If you’re retiring at 60 and living until 100, assuming your expenses will inflate at 3% annually for 40 years might cause you to retire too late or underspend in your Go-Go Years. Retirement actually has three distinct phases with different spending patterns.

The Go-Go Years

Early retirement represents the honeymoon phase when you’re still active and physically able to do what you want. This is when you hit those bucket list golf trips, travel the world, and experience things you wanted to do while working but didn’t have time for.

Expenses might actually increase during the go-go years due to pent-up demand for activities and experiences. This is when health is in your favor, and you can be most active.

The Slow-Go Years

After checking off major bucket list items, you enter the slow-go years. You’re still traveling and active, but maybe not as frequently. Lifestyle stabilizes, and spending typically moderates from the go-go years.

The No-Go Years

Later in retirement, you enter the no-go years when physical limitations increase. While healthcare costs might spike during this phase (hence the need for long-term care planning), studies show that retirees actually experience inflation that’s about 1% lower than general inflation over their entire retirement.

Planning for Spending Changes

This spending pattern – higher in go-go years, moderate in slow-go years, and potentially lower but different in no-go years – should influence your retirement planning for longevity. Don’t assume linear expense growth for 40 years, as this might cause you to retire later than necessary.

However, if you plan to spend aggressively in your go-go years, those portfolio guardrails become critical. You need flexibility to adjust your withdrawal rate based on market performance, especially if you retire during a downturn.

Retirement Legacy Planning and Gifting Strategies

When planning for longevity, consider that if you live until 100, your adult children might be 70-80 years old when they inherit. This reality should influence your thinking about legacy and the utility of money.

The Concept of Diminishing Utility

Money has diminishing returns as you age. If you don’t enjoy money during your go-go years, you lose the utility of those dollars. The same applies to legacy. There’s a difference between giving money when your children are struggling with mortgages, private school costs, or starting businesses versus when they’re already retired.

Giving with a Warm Hand

Consider the benefits of lifetime giving versus leaving everything as an inheritance. Wouldn’t it be meaningful to see what your beneficiaries do with gifts during your lifetime? This also helps you understand their money management skills, which can inform your estate planning decisions.

If you’re gifting money and your children are using it wisely – contributing to retirement accounts, buying homes, funding education – that validates leaving them more when you’re gone. If they’re making poor financial decisions, you might want to restructure your estate plan with more protections.  Or better yet, have some meaningful conversations with those beneficiaries while you’re still alive.

Current Gifting Opportunities

The annual exclusion allows each taxpayer to give $19,000 per recipient in 2026 without filing gift tax returns. For married couples with married children, this can add up to substantial annual gifts. These gifts also remove future growth from your estate, which is particularly valuable if you face potential estate tax issues.

The key question is: when does your legacy have the greatest utility? During your lifetime, when you can see its impact, after you’re gone, or some combination of both?

Taking Action on Your Longevity Plan

Living longer can be a blessing, but it creates significant challenges for people retiring today. With technology and medicine evolving rapidly, longevity planning becomes essential for anyone approaching retirement.

Review Your Foundation

Start by reviewing your guaranteed income sources. Look at your Social Security strategy and make sure you’re maximizing not only lifetime benefits but also surviving spouse benefits. If you have a pension, carefully consider survivor benefit options.

Stress Test Your Plan

Run scenarios assuming you live until 100. Would your current plan hold up? Does a traditional 60-40 portfolio work, or do you need 75-25 or even 80-20? Test different allocations considering both your risk tolerance and risk capacity.

Address Long-Term Care

Regardless of your wealth level, you need a long-term care plan. This includes communication about who will do what, where funds will come from, and how you’ll pay for care. The goal is to remove financial and logistical burdens from your loved ones.

Plan Your Spending Strategy

Don’t assume linear expense growth for 40 years. Plan for the realities of retirement spending phases, and if you want to spend more aggressively in your go-go years, implement guardrails to protect against sequence-of-returns risk.

Consider Your Legacy Impact

Think about when your legacy will be most useful. Consider lifetime giving strategies that allow you to see the impact of your generosity while potentially providing valuable teaching opportunities for your beneficiaries.

Retirement planning for longevity requires a different approach than traditional retirement planning. The stakes are higher, the time horizon is longer, and the strategies need to be more sophisticated. But with proper planning, a 40-year retirement can be not just financially sustainable, but truly fulfilling.

If you’re looking for help creating a retirement plan that accounts for longevity, consider working with a financial advisor who specializes in retirement income planning. The complexity of planning for a 40-year retirement makes professional guidance more valuable than ever.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Why You Should Plan for Early Retirement Even If You Don’t Plan to Retire Early

I recently met with two clients who completely changed how I think about retirement planning. Both were retiring much earlier than they had anticipated, and both situations were related to unexpected health issues. One client is now on disability, though thankfully, his wife is still working for a few more years, and he does have a disability policy in place. The other received a cancer diagnosis and is potentially retiring much earlier than planned as well.

These conversations took me back to my days studying for the RICP (Retirement Income Certified Professional) designation. There was a statistic that really resonated with me. After reviewing my coursework and notes, I found it: 51% of retirees retired earlier than anticipated. That’s right! There’s a better than 50% chance that whatever age you think you’re going to retire, you’re going to retire earlier.

The number one reason? Health issues. This reality made me realize something important. We need to stop planning for a “normal” retirement age in our assumptions, even if we end up working until 70 or 65.

The Reality of Uncontrollable Retirement Factors

Let me share another example. I’m working with a client right now who’s 62. He plans to work at least until 65, when he becomes eligible for Medicare. During the pandemic, he moved from New York to Florida. The plan was to work remotely, feel good, and coast into retirement while continuing to build his assets.

Unfortunately, the company is bringing everyone back to the office. He has two choices.

  1. Move back to New York
  2. Pick a random satellite location in Florida to work in

Neither of these is convenient based on where he now resides. So, he might retire this year.

My point is that things outside our control often lead people to retire earlier than planned. The inputs you give your financial advisor, including “I want to work until 70,” significantly impact the calculations on:

  • How much you need to save for retirement
  • How much risk you need to take
  • How long your portfolio needs to last while you’re spending it down

I don’t think it’s prudent to build those optimistic assumptions into your plan.

I recommend assuming you’ll retire at 62, 63, or 64, even if you love what you do, and genuinely want to work until 70. Then control what you can control.

Understanding Why People Retire Early

The research shows us exactly why 51% of people retire earlier than expected. Here’s the breakdown:

46% cited health reasons – This is the largest category and completely uncontrollable. Whether it’s a sudden diagnosis, chronic condition, or physical limitations, health issues force many people out of the workforce earlier than planned.

30% were laid off or offered an early retirement package – Again, this is largely uncontrollable. Company restructuring, economic downturns, or industry changes can force your hand regardless of your personal timeline.

11% needed to care for a loved one – Caring for aging parents, a sick spouse, or other family members is another uncontrollable factor that can derail retirement plans.

When you add these three categories together, that’s 87% of early retirees who left work due to circumstances beyond their control. This is why early retirement planning makes sense for everyone, not just those dreaming of early retirement.

What Changes When You Plan for Early Retirement

If you’re 55 and had been planning to work until 70, you probably had a pretty nice-looking financial plan. You’d get maximum Social Security benefits at 70, which would line up perfectly with when you start portfolio withdrawals, creating no income gap. But what happens when you plan to retire at 60 or 62 instead? Several things change, and you need to prepare for them.

1. You Need to Save More and Invest More

This one’s pretty straightforward. A good saver typically saves about 10-15% of their gross income. But if you’re planning for early retirement – even if you don’t actually retire early – I’d argue you need to save closer to 20-25% of your gross income.

I’m personally planning to have financial independence before I turn 55. Now, I love what I do and don’t see myself at 60 doing nothing. I’m having more fun in my career today than I ever have. But by planning for retirement significantly earlier, I’m building the option to quit if I want to or sell my business if I want to. That’s the power of early retirement planning – it gives you choices.

2. Healthcare Before Medicare

Medicare eligibility starts at 65, and many people work until then specifically because they’re afraid of what they’ll do for health insurance if they retire at 60, 61, or 62. But here’s what most people don’t realize: buying private health insurance or through the Affordable Care Act isn’t that complicated.

I do it with my family. It’s not cheap, but if you’re retired, your taxable income is going to be pretty low. You might have some interest income from bonds or high-yield savings accounts, maybe dividends from stocks or ETFs, perhaps Social Security or a pension. But generally, folks who retire at 60-62 have relatively low taxable income.

This low income often qualifies you for ACA subsidies. If your income is relatively low, your health insurance costs could be next to nothing – possibly less expensive than what you were paying when you were working. Don’t let healthcare force you into a job you hate until 65 just because everyone else talks about working until Medicare kicks in.

3. Stay Aggressive with Your Investment Strategy Longer

This is a mistake I see repeatedly. People preparing for retirement think, “I need this money in one, two, three, or four years, so I need to dial back my risk.” Or worse, they pick a target-date fund for 2025 because they want to retire in 2025, and these funds force you into being super conservative.

By doing this, you’re bringing inflation and longevity risk into the picture more than necessary. When I say stay aggressive, I’m not talking about putting 100% in stocks or betting everything on high-risk investments. I’m talking about maintaining a higher equity allocation than traditional retirement advice suggests.

If the benchmark portfolio for retirees is 60% equities and 40% fixed income, maybe you stay at 75% or 80% equities for the first phase of retirement. This helps you capture returns early on (assuming the market cooperates), continue building your portfolio, and protect against inflation and longevity risks that come with retiring earlier.

4. Plan for Longevity

If you retire at 60 and have longevity in your genes or excellent health, there’s a possibility you or your spouse may live 30-35 years in retirement. This goes hand in hand with staying aggressive longer – you may need to maintain a fairly aggressive investment approach throughout your retirement years to protect against inflation and longevity risks.

You also need a sound Social Security strategy to maximize survivor benefits should one spouse pass away before the other. That Social Security benefit will be one of the best inflation hedges in your retirement income plan, so you’d better maximize it if you plan to live a long life.

5. Develop a Sound Income Distribution Plan

If you plan to delay Social Security until 70 to get maximum benefits but retire at 60, that’s a potential 10-year gap where you’ll have no Social Security income. You need to replace that income with portfolio withdrawals and distributions.

Preparing your portfolio for income distributions is critical. You need a disciplined, unemotional, repeatable process to generate cash flow monthly or quarterly. We’ve all heard about buying low and selling high. When you’re accumulating wealth and saving in your 401(k) or IRA, it’s all buying – you’re purchasing shares of investments.

But in the distribution phase, you’re not just buying anymore. You’re turning the portfolio on for income. Some will come from cash flows such as interest and dividends, but others will come from selling investments each month, quarter, or year. Having a disciplined process so you’re not selling the wrong thing at the wrong time is critical for maintaining portfolio longevity when retiring early.

What Happens If You Plan Early But Don’t Retire Early?

Let’s say you do all these things and prepare to retire early, but you don’t actually retire early. What’s the impact? Nothing really negative that I can think of.

The main drawback is that you might need to tighten your belt more. If you’re struggling to save 10-15% and early retirement planning calls for 20-25%, that might be tough without working a second job or getting a significant pay raise. But if you have the capacity to save and invest more, there are only benefits.

You could potentially spend or gift more in retirement. Maybe you could build your dream home or have a vacation home free and clear. You might have better opportunities to leave a financial legacy for your children and grandchildren. You could have different risk capacity – maybe you’ve saved more than enough for retirement, which allows you to take on more investment risk to build an even larger legacy for the next generation or for charitable goals.

Maybe this also allows you to set aside funds for self-funding long-term care. Long-term care risk is one of the top risks for any retiree today – those healthcare costs at the end of life and the potential burden on loved ones. If you’ve saved more than you need for your own retirement, you can potentially self-fund long-term care.

The Benefits of Early Retirement Planning for Everyone

The beauty of early retirement planning is that it benefits everyone, regardless of when you actually retire. It’s about building financial security and creating options in your life.

When you follow early retirement planning principles, you’re essentially stress-testing your financial plan. Instead of assuming everything will go perfectly – that you’ll work until 70, stay healthy, never get laid off, and never need to care for family members – you’re planning for reality.

This approach gives you financial flexibility. If you do face unexpected health issues, job loss, or family caregiving responsibilities, you’ll have options. You won’t be forced into desperate financial decisions because you’ll have built a solid foundation.

Even if none of these challenges arise and you work until your planned retirement age, you’ll be in a much stronger financial position. You’ll have more saved, better investment strategies, and multiple backup plans. That’s not a bad problem to have.

Taking Control of What You Can Control

The key insight from all of this is focusing on what you can control versus what you can’t.

You can’t control whether you’ll have health issues, whether your company will downsize, or whether you’ll need to care for aging parents. But you can control your savings rate, your investment strategy, your distribution process, and your ability to manage risk before and during retirement.

Let’s control what we can and plan for the worst while hoping for the best. That’s what smart early retirement planning is really about – not necessarily retiring early, but being prepared for whatever life throws your way.

And if you want help planning for your retirement, we’d love to help you.  At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

8 Roth Conversion Tax Traps to Avoid

The One Big Beautiful Bill Act (OBBBA) has fundamentally changed the retirement planning landscape, creating new opportunities and hidden dangers for anyone considering a Roth conversion. While the legislation offers some attractive benefits like increased SALT deductions and new senior tax breaks, it has also created a minefield of potential Roth Conversion Tax Traps that could cost you thousands of dollars if you’re not careful.

Understanding these Roth Conversion Tax Traps can save you thousands in unexpected taxes and help you make smarter decisions about your retirement planning. The most dangerous Roth Conversion Tax Traps often catch even experienced investors off guard, particularly with the complex interactions between OBBBA’s new provisions and existing tax rules.

If you’re considering an IRA Conversion to Roth in this new tax environment, you need to understand exactly what you’re getting into. The stakes are higher than ever, and the margin for error has shrunk considerably. Let’s dive into the eight most critical traps you need to avoid.

Understanding IRA Conversion to Roth Under New Tax Laws

Before we explore the specific traps, it’s essential to understand how the OBBBA has changed the conversion landscape. The timing of your IRA Conversion to Roth can significantly impact your tax bill, especially with the new deductions and rate structures in play.

The legislation permanently extends lower federal income tax rates, which might seem like good news for conversions. However, this stability comes with a catch – the window for optimal conversion strategies has narrowed, and the penalties for mistakes have grown steeper.

Many people rush into an IRA Conversion to Roth without considering all implications, particularly how the new law’s provisions interact with existing tax rules. This rush often leads directly into the first major trap.

Tax Trap #1: The Senior Bonus Deduction

This one is brand-new for 2025, and it’s a big deal for retirees.

If you turn at least 65 in 2025, you’re now eligible for an additional “Senior Bonus Deduction” on top of your standard deduction. After OBBBA, the standard deduction bumps to $31,500 for married filing jointly and $15,750 for singles. You still get the regular senior deduction if 65+ which is $1,600 per spouse for MFJ or $2,000 for singles.

But here’s the bombshell:
The Senior Bonus Deduction adds another $6,000 per qualifying person. For a married couple where both spouses are 65+, that’s $12,000 extra.

So, in theory, a married filing jointly couple, both turning 65 in 2025, can claim up to $46,700 as their standard deduction. No itemizing required. No shoe boxes of receipts. And yes, this is exactly why so few taxpayers itemize, and that trend will likely continue.

Why This Matters for Roth Conversions

That massive deduction means the Roth conversion “window” just got wider. More deductions = more room to realize income before it climbs the tax brackets.

We ran a projection yesterday for a couple we work with who both qualify for the senior bonus deduction. Last year, they converted $51,000 to Roth. This year, if they converted the same $51k, they’d pay $2,000 less in taxes for 2025! 

But here’s the trap…
The Senior Bonus Deduction phases out.

  • Singles: begins phasing out at $75,000 AGI, fully gone by $175,000
  • MFJ: begins phasing out at $150,000 AGI, fully gone by $250,000

Every dollar above the first threshold reduces your Senior Bonus.  Meaning a Roth conversion can unintentionally shrink (or completely eliminate) the very deduction you were planning to rely on.

And remember: this senior bonus deduction is only through 2028, then it’s set to expire.

The Bottom Line

Yes, this new deduction makes it tempting to get aggressive with Roth conversions, but you must weigh each conversion against the potential phaseout of the Senior Bonus Deduction. Big opportunity… but also a sneaky trap if you’re not careful.

How to Avoid this Trap

First, determine how important Roth Conversions are.  Then, weigh the cost of those conversions, particularly if you are 65 or older in 2025!

Tax Trap #2: State Income Tax Arbitrage

Many pre-retirees living in high-tax states plan to retire to a low or no-state-income-tax state in the future.  Additionally, there might be a period after retirement when you are technically in the “Roth Conversion Window” but still paying state income taxes.  Once you move to your new low or no-income tax state, those state income taxes might go down or be eliminated completely.  This provides a unique opportunity to perhaps PAUSE or reduce conversions UNTIL you move to that new, more tax-favorable environment.  This could save thousands of dollars in state income taxes on those future conversions. 

How to Avoid this Trap

Calculate the state tax impact of your conversion before proceeding. Consider the total tax cost (federal plus state) rather than just the federal impact. In some cases, it might make sense to establish residency in a no-tax state before doing large conversions.

Tax Trap #3: Medicare IRMAA Surcharge Surprises

One of the most overlooked Roth Conversion Tax Issues involves Medicare’s Income-Related Monthly Adjustment Amount (IRMAA) surcharges. These surcharges kick in when your modified adjusted gross income exceeds certain thresholds, and Roth conversions count as income for IRMAA purposes.

The IRMAA thresholds for 2025 start at $103,000 for single filers and $206,000 for married couples filing jointly. But here’s what makes this trap particularly nasty – IRMAA is based on your tax return from two years prior. So a large conversion you do in 2025 could increase your Medicare premiums in 2027.

Example:

Let’s say you’re 67 years old and typically have $90,000 in annual income. You decide to do a $50,000 Roth conversion, pushing your income to $140,000. Two years later, you’ll face IRMAA surcharges that could add $2,000 or more to your annual Medicare premiums – and those higher premiums continue until your income drops back down.

The trap gets worse if you do multiple conversions or have other income spikes. Some retirees find themselves paying IRMAA surcharges for years because they didn’t coordinate their conversion timing properly.

These hidden Roth Conversion Tax Consequences could derail your retirement strategy if you’re not prepared for the ongoing premium increases. Understanding proper Roth Conversion Tax Treatment helps optimize your strategy and avoid these costly surprises.

How to Avoid this Trap

Model your income for the next several years, including planned conversions. Consider spreading conversions across multiple years to stay below IRMAA thresholds. If you’re approaching Medicare age, be especially careful about conversion timing in the years before you enroll.

Tax Trap #4: The Social Security Tax Spike

Despite what some headlines have claimed over the last six months, Social Security did not become tax-free after OBBBA. Social Security benefits are still taxable, and the amount that shows up in your taxable income depends entirely on your provisional income. That formula looks like this: your AGI (not including Social Security) + any “tax-free income” like foreign earned income or muni bond interest + 50% of your Social Security benefits. That total becomes your combined income, which determines how much of your Social Security becomes taxable.

So let’s go back to the couple converting $51,000. Before the conversion, their provisional income was low enough that they were paying only a very small tax on their Social Security. But once they converted that $51k, their taxable income jumped by $84,000. Why? Because the higher provisional income triggered the Social Security Tax Torpedo, pulling more of their benefits into taxation. 

How to Avoid this Trap

A Roth conversion increases your provisional income, which means (1) you may trigger taxes and (2) each dollar converted can pull more of your Social Security into taxation.  You might consider delaying Social Security during this more aggressive Roth Conversion phase in order to maximize the tax efficiency of those conversions.  Watch the full YouTube video I posted here:  ($51k Roth Conversion Resulted in $84k of taxable income).

Tax Trap #5: Timing Mistakes That Multiply Tax Costs

Timing is everything with Roth conversions, and OBBBA has created new timing considerations that can make or break your strategy. The most common timing mistake is doing conversions during high-income years instead of waiting for lower-income periods.

The new law provides several opportunities for strategic timing, but many people miss them entirely. For example, the senior deduction of $6,000 is only available through 2028. If you’re approaching 65, you have a limited window to take advantage of this deduction while doing conversions.

But here’s the trap – everyone knows about this deadline, which means many people are rushing to convert in the same timeframe, potentially pushing themselves into higher brackets unnecessarily.

Another timing trap involves market conditions. Some people do conversions when their account values are high, paying taxes on inflated asset values. Others wait for market downturns, but then panic and convert at the worst possible time from a tax perspective.

Changes to Roth Conversion Tax Treatment affect conversion timing decisions in ways that aren’t immediately obvious. The interaction between OBBBA’s provisions and your personal tax situation creates unique timing windows that require careful analysis.

How to Avoid this Trap

Create a multi-year conversion plan that takes advantage of low-income years, market downturns, and temporary tax benefits. Don’t rush to convert just because rates are scheduled to increase – make sure the timing works for your specific situation. Consider converting during early retirement years before Social Security and RMDs begin.

Tax Trap #6: ACA Premium Tax Credits

Healthcare is a huge point of stress for early retirees.  What do you do before Medicare kicks in? And yes, the ACA premium situation is getting crazy. I just ran my projected 2026 premium assuming the exact same plan… 60%+ increase. Seriously!?

But here’s the real issue for early retirees: the ACA subsidy cliff returns in 2026. From 2021 to 2025, the subsidy was more of a gradual slope.  You could earn above 400% of the Federal Poverty Level and still receive a premium tax credit. In 2026, that slope disappears. It’s back to a hard cliff. That means earn $1 over the 400% FPL threshold, and your premium tax credit is gone completely.

So, depending on your situation, this might actually tempt you to do heavier Roth conversions in 2025 while the rules are still flexible. Once 2026 hits, those conversions could cost you thousands in lost subsidies.

How to Avoid this Trap

Be conservative with your income estimates, as this is a tax credit ADVANCE!  Yes, you can elect to not receive reduced healthcare premiums and true up your taxes the next filing season, but this might result in you paying thousands of unnecessary dollars for healthcare coverage that you did not need to pay! 

Tax Trap #7: Capital Gains Triggers

One of the best features of a taxable brokerage account, or what I like to call a non-qualified account.  Unlike a 401(k) or IRA, it has the preferential long-term capital gains treatment when you hold investments for at least a year. Instead of being taxed like ordinary income, your gains fall into one of three brackets: 0%, 15%, or 20%.

Additionally, qualified dividends earned are also taxed at long-term capital gains rates!  Not to mention the benefit of the step-up in cost basis at death. 

Here’s Where the Trap Comes In:

If your taxable income crosses certain thresholds, it can push your capital gains into a higher bracket, and in some cases, even trigger the Net Investment Income Tax (NIIT)—an extra 3.8% surcharge on top.

That means before a Roth conversion, you might be able to harvest gains at 0% tax. But after the conversion? Suddenly, you’re looking at 15% capital gains, or worse, you’re now over the NIIT threshold and owe an additional 3.8%.

How to Avoid this Trap

Run tax projections on your capital gains before and after a conversion.  It might make sense to limit conversions if you are enjoying 0% long-term capital gains treatment. 

Tax Trap #8: FOMO

Ok people… Roth conversion FOMO is real. The hype over the last seven-ish years has been nonstop, and it can make you feel like you have to convert your IRA or you’re somehow missing out. But before you panic-convert everything, pause for a second. Think about why a Roth conversion strategy might make sense for you.  And just as importantly, why it might not.

In fact, I did an entire episode breaking down “7 reasons NOT to convert your IRA to a Roth,” and it’s worth a listen (click here). Not every tax strategy is universally good, and Roth conversions are no different. The smartest planning comes from knowing when to act and when to pump the brakes.

How to Avoid this Trap

Get out your crystal ball and tell us what your lifetime taxes will be with conversions and without conversions.  That’ll give you the answer!  In all seriousness, listen to that podcast episode, and you make the call!

New Roth Conversion Tax Treatment Rules: What You Need to Know

Understanding proper Roth Conversion Tax Treatment helps optimize your strategy in the post-OBBBA environment. The new law doesn’t change the basic mechanics of Roth conversions, but it does change the tax environment in which those conversions occur.

The key changes include higher standard deductions, new targeted deductions for seniors and certain types of income, and extended lower tax brackets. These changes create both opportunities and traps, depending on how you navigate them.

The most important principle is that every conversion decision must be evaluated in the context of your complete tax picture, including federal taxes, state taxes, Medicare premiums, and other income sources. The days of simple conversion calculations are over – the new tax environment requires sophisticated planning.

Avoiding These Eight Roth Conversion Tax Traps: Your Action Plan

Avoiding these Roth Conversion Tax Traps requires careful planning and timing, but the effort can save you thousands of dollars and help you build a more tax-efficient retirement strategy. Here’s your action plan:

  1. Never do a large conversion without modeling the complete tax impact, including federal taxes, state taxes, Medicare premiums, and the loss of deductions or credits. The true cost of a conversion is often much higher than the obvious federal income tax.
  2. Consider spreading conversions over multiple years to manage tax brackets and avoid triggering various phase-outs and surcharges. The OBBBA provisions create a window of opportunity through 2028, but that doesn’t mean you should rush to convert everything immediately.
  3. Coordinate your conversion strategy with other aspects of your financial plan, including state residency changes, Social Security claiming strategies, and investment portfolio management. Roth conversions don’t exist in isolation – they affect and are affected by every other aspect of your tax situation.
  4. Keep detailed records and work with qualified professionals who understand the complexities of the new tax law. The interaction between OBBBA provisions and existing tax rules can create scenarios that even experienced taxpayers may miss.
  5. Remember that tax laws change, and what makes sense today might not make sense tomorrow. Build flexibility into your conversion strategy and be prepared to adjust as circumstances change.

Final Thoughts

The One Big Beautiful Bill Act has created both opportunities and dangers for Roth conversion strategies. By understanding and avoiding these eight critical tax traps, you can take advantage of the opportunities while protecting yourself from the dangers. The key is careful planning, thorough analysis, and professional guidance when needed.

Your retirement security depends on making smart decisions about Roth conversions in this new tax environment. Don’t let these traps derail your retirement plans – take the time to understand them and plan accordingly.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

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