Archive for month: December, 2022
Cashflow VS. Income in Retirement
/in Insurance/by John WardAs you read in Avoid The Money Pit, “cashflow” spends just like its cousin named “income”, though it is a much more desirable dance partner in retirement.
Here is an example of why.
As the financial pundits hypnotize the masses to fund their qualified retirement plans, like IRAs and 401(k)s, etc., with tax-deferred earnings that are, for the most part, inaccessible without penalty, often for decades, the American worker receives a back-handed reward in their retirement years.
This reward comes in the form of a package deal called Provisional Income and Required Minimum Distributions (RMDs).
Why might you care about this now, regardless of your age?
Well, first of all, when you retire, you may not be interested in working to make ends meet. Not only may you not be interested, you might not be able to do so.
This package deal may cost you many $1,000s (in today’s dollars) when you need the spendable cash to live.
Without going too deep into the details, let me just first describe RMDs. If you have money in tax deferred retirement plans, starting at the age of 72, you will be required to withdraw a minimum amount from the total balance of these accounts, so the government can begin to abscond tax dollars.
So, not only are these minimum required withdrawals taxed at whatever the current rate is, these dollars are added to a formula called Provisional Income that determines how much of your Social Security Income will be taxed.
Here’s an example:
At 72 years old, a retiree has a qualified plan balance of $1,000,000.
She has an annual Social Security Income (SSI) of $24,000
Required Minimum Distribution (RMD) from her retirement account is $39,000
The Provisional Income (PI) is derived by adding the SSI and RMD which = $63,000
If you’re PI is less than $25,000, none of your SSI is taxable.
For Provisional Income totaling $25,000-$34,000, the lesser of 50% of your SSI or 50% of the PI, will be the amount of taxable SSI, not to exceed $4,500.
For Provisional Income above $34,000, the lesser of 85% of SSI or 85% of provisional income plus the $4,500 from above equals the amount of your SSI that is taxable.
So, back to our 72 year old retiree. Here are her numbers:
Because 85% of $24K is less than 85% of $63K….
$24,000 (SSI) x .85 = $20,400 PLUS $4,500
EQUALS
$24,900 of Social Security Income WILL BE TAXED!
Yes, you are reading this correctly. She isn’t even receiving that much in SSI. So in other words, every dollar of her $24,000 of SSI will be taxed!
Even worse, every dollar of her $63,000 of provisional income will be taxed at whatever rate the government deems they want when she is no longer creating new income via the labor force.
If you are interested in building an unshakable financial foundation for the nearly infinite possibilities you can take advantage of throughout life when you have access to no-questions-asked cash and simultaneously build a tax-exempt “cashflow” system for your retirement, I can help you do so.
Get in Touch
The Nash CashFlow Group
John Ward
CashFlow Coach
T: 603-479-2511
E: john@nashcashflow.com
Serving all 50 States.
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