Unplanned Retirement

Posted On May 31, 2020 By Scott Stratton, CFP(R), CFA In Retirement Planning /

With job losses this year reaching 40 million, many Americans are being forced into an unplanned retirement. Maybe they wanted to work until age 65 or later and find themselves out of work at age 60 or 62. Job losses due to Coronavirus layoffs may be the most common reason today. However, many people also enter early retirement due to their health or to care for a spouse or parent.

Each year, the Employee Benefits Research Institute publishes a Retirement Confidence Survey Report. Here are some findings from their 2020 report published in April:

48% of current retirees retired earlier than they had planned. Only 6% retired later than they originally planned.
Less than one-half of workers have tried to calculate how much money they will need to live comfortably in retirement.
Of workers who reported their employment status would be negatively effected by the Coronavirus, only 39% felt confident that they will have enough money to last their entire life.

Half of all retirees retired at a younger age then they had planned. That statistic has remained very consistent over the years. In the 1991 report, it was 51%. This is a reality that more people should be preparing for. If you want to retire at 65, 70, or “never”, will you be prepared if you end up retiring at 64, 60, or 55? Certainly, if you enjoy your work, keep on working! But sometimes, the choice is not ours and people find themselves in an early, unplanned retirement.

If you have lost your job or just want to be better prepared should that happen, you need to plan your retirement income carefully.

Unplanned Retirement Steps

You should begin with a thorough and accurate calculation of your spending needs. Not what you want to spend but what you actually spend. Determine your health insurance costs until age 65 and for Medicare after age 65, including Part B premiums, and Medicare Advantage or Medigap coverage, and Part D prescription drug coverage. Read more: Using the ACA to Retire Early.
Reduce your expenses. This will require setting priorities and determining where you can do better. Still, there may be some low hanging fruit where you can save money with little or no change in your lifestyle. Read more: Cut Expenses, Retire Sooner
Calculate your sources of retirement income. Read more: When Can I Retire?
Be careful of starting Social Security at age 62. This is very difficult for people to not access “free money”, everyone wants to do it. Be sure to consider longevity risk and the possible benefits of spending investments first and delaying Social Security for a higher payout later. Read more: Social Security, It Pays to Wait
Consider going back to work, even part-time, to avoid starting retirement withdrawals. The more you delay your retirement, the more likely you will not run out of money later. Here’s the math on why: Stop Retiring Early, People!

Be Prepared for the Unexpected

I think the best way to survive an unplanned retirement is to achieve financial independence at an early age. If you could retire at 50, plan to work until 65, and end up retiring at 60, it’s no problem. This requires saving aggressively and investing prudently from an early age. And that’s why retirement planning isn’t just for people who are 64. Retirement planning should also be for people who are 54, or 44, or even 34. Plan well, and an early retirement could be a good thing. It’s your chance to begin a new adventure!

If – surprise! – you do happen to be facing an unplanned retirement, let’s talk. We can help you evaluate your options for retirement income and establish a process and budget. Our retirement planning software can help you make better informed decisions, including when to start benefits, how much you can withdraw, and if you have enough money to last your lifetime.

It certainly is a shock to people when they end up retiring earlier than they had originally planned. However, it is very common and about half of all retirees are in the same situation. Unfortunately, not everyone who has an unplanned retirement will be having the comfortable years they had hoped. Basing your retirement on the assumption that you will work until age 70 or later may not be realistic. It could even set you up for failure if you end up needing to retire early. Whatever your age, retirement planning is too important to not seek professional help.

Retirement Income at Zero Percent

Posted On May 3, 2020 By Scott Stratton, CFP(R), CFA In Retirement Planning /

With interest rates crushed around the world, how do you create retirement income at zero percent? Fifteen years ago, conservative investors could buy a portfolio of A-rated municipal bonds with 5 percent yields. Invest a million dollars and they used to get $50,000 a year in tax-free income.

Not so today! Treasury bonds set the risk-free rate which influences all other interest rates. Currently, the rate on a 10-year Treasury is at 0.618 percent. One million dollars in 10-year Treasuries will generate only $6,180 in interest a year. You can’t live off that.

You can do a little better with municipal bonds today, maybe 2-3 percent. Unfortunately, the credit quality of municipal bonds is much worse today than it was 15 years ago. A lot of bonds are tied to revenue from toll roads, arenas, or other facilities and are seeing their revenue fall to zero this quarter due to the Coronavirus. How are they going to repay their lenders?

Debt levels have risen in many states and municipalities. Pension obligations are a huge problem. The budget issues in Detroit, Puerto Rico, Illinois, and elsewhere are well known. Shockingly, Senator McConnell last week suggested that states maybe should be allowed to go bankrupt. That would break the promise to Municipal Bond holders to repay their debts. This is an appalling option because it would cause all states to have to pay much higher interest rates to offset the possibility of default. And unlike Treasury bonds which are owned by institutions and foreign governments, Municipal Bonds are primarily owned by American families.

With Treasuries yielding so little and Municipal Bonds’ elevated risks, how do you plan for retirement income today? We can help you create a customized retirement income plan. Here are three parts of our philosophy.

1. Don’t Invest For Income

We invest for Total Return. In Modern Portfolio Theory, we want a broadly diversified portfolio which has an efficient risk-return profile, the least amount of risk for the best level of return. We focus on taking withdrawals from a diversified portfolio, even if it means selling shares.

Why not seek out high dividend yields and then you don’t have to touch your principal? Wouldn’t this be safer? No, research suggests that a heavy focus on high yields can create additional risks and reduce long-term returns. Think of it this way: Company A pays a 5% yield and the stock grows at zero percent; Company B pays no yield but grows at 8%. Clearly you’d be better off with the higher growth rate.

When you try to create a portfolio of high yield stocks, you end up with a less diversified portfolio. The portfolio may be heavily concentrated in just a few sectors. Those sectors are often low growth (think telecom or utilities), or in distressed areas such as oil stocks today. The distressed names have both a higher possibility of dividend cuts, as well as significant business challenges and high debt.

The poster child for not paying dividends is Warren Buffett and his company, Berkshire Hathaway. He’s never paid a dividend to shareholders in over fifty years. Instead, he invests cash flow into new acquisitions of well-run businesses or he buys stocks of other companies. Over the years, the share price of BRK.A has soared to $273,975 a share today. If investors need money, they can sell their shares. This is more tax-efficient, because dividend income is double taxed. The corporation has to pay income taxes on the earnings and then the investor has to pay taxes again on the dividend. When a company grows, the investor only pays long-term capital gains when they decide to sell. And the company can write off the money it reinvests into its businesses.

2. Create a Cash Buffer

Where a total return approach can get you into trouble is when you have to sell stocks in a down market. If you need $2,000 a month and the price of your mutual fund is $10/share, you sell 200 shares. But in a Bear Market when it’s down 20%, you’d have to sell 250 shares (at $8/share) to produce the same $2,000 distribution. When you sell more shares, you have fewer shares left to participate in any subsequent recovery.

This is most problematic in the early years of retirement, a fact which is called the Sequence of Returns Risk. If you have a Bear Market in the first couple of years of retirement, it is more likely to be devastating than if you have the same Bear Market in your 20th year of retirement.

To help avoid the need to sell into a temporary drop, I suggest keeping 6-12 months in cash or short-term bonds so you do not have to sell shares. Additionally, I prefer to set dividends to pay out in cash. If we are receiving 2% stock dividends and 2% bond interest, and need 4% a year, we would have to sell just two percent of holdings. This just gives us more flexibility to not sell.

Also, I like to buy individual bonds and ladder the maturities to meet cash flow needs. If your RMD is $10,000 a year, owning bonds that mature at $10,000 for each of the next five years means that we will not have to touch stocks for at least five years. This approach of selling bonds first is known as a Rising Equity Glidepath and appears to be a promising addition to the 4% Rule.

3. Guaranteed Income

The best retirement income is guaranteed income, a payment for life. This could be Social Security, a government or company Pension, or an Annuity. The more you have guaranteed income, the less you will need in withdrawals from your investment portfolio. We have to be fairly conservative in withdrawal rates from a portfolio, because we don’t know future returns or longevity. With guaranteed income, you don’t have to fear either.

We know that Guaranteed Income improves Retirement Satisfaction, yet most investors prefer to retain control of their assets. But if having control of your assets and the ability to leave an inheritance means lower lifetime income and higher risk of failure, is it really worth it?

I think that investors make a mistake by thinking of this as a binary decision of 100% for or against guaranteed income. The more sophisticated approach is to examine the intersection of all your retirement income options, including when to start Social Security, comparing lump sum versus pension options, and even annuitizing a portion of your nest egg.

Consider, for example, if you need an additional $1,000 a month above your Social Security. For a 66-year old male, we could purchase a Single Premium Immediate Annuity for $176,678 that would pay you $1,000 a month for life. If you instead wanted to set up an investment portfolio and take 4% withdrawals to equal $1,000 a month, you would need to start with $300,000. So what if instead of investing the $300,000, you took $176,678 and put that into the annuity? Now you have guaranteed yourself the $1,000 a month in income you need, and you still have $123,322 that you could invest for growth. And maybe you can even invest that money aggressively, because you have the guaranteed annuity income.

Conclusion

It’s a challenge to create retirement income at zero percent interest rates. Unless you have an incredibly vast amount of money, you aren’t going to get enough income from AAA bonds or CDs today to replace your income. We want to focus on a total return approach and not think that high dividend stocks or high yield bonds are an easy fix. High Yield introduces additional risks and could make long-term returns worse than a diversified portfolio.

Instead, we want to create a cash buffer to avoid selling in months like March 2020. We own bonds with maturities over five years to cover our distribution or RMD needs. Beyond portfolio management, a holistic approach to retirement income evaluates all your potential sources of income. Guaranteed income through Social Security, Pensions, or Annuities, can both reduce market risk and reduce your stress and fear of running out of money. The key is that these decisions should be made rationally with an open mind, based on a well-educated understanding and actual testing and analysis of outcomes.

These are challenging times. If you are recently retired, or have plans to retire in the next five years, you need a retirement income plan. We had quite a drop in March, but recovered substantially in April. The economy is not out of the woods from Coronavirus. I think global interest rates are likely to remain low for years. If you are not well positioned for retirement income, make changes soon, using the strength in today’s market to reposition.

The 12% Roth Conversion: Why It Still Matters in 2026

Posted On February 23, 2020 By Scott Stratton, CFP(R), CFA In Retirement Planning /

For baby boomers and pre-retirees with $500,000–$5 million in investable assets who want a fiduciary advisor and are comfortable working remotely.

A “12% Roth conversion” is a strategic approach to using the 12% federal income tax bracket to convert pre-tax retirement dollars into Roth IRA dollars without jumping into a higher marginal tax rate — potentially saving taxes over the long term. This concept is still relevant in 2026 for many retirement income strategies.

What Is a Roth Conversion?

A Roth conversion moves money from a Traditional IRA or other pre-tax plan into a Roth IRA, where future growth and qualified withdrawals are tax-free.
When you convert, the converted amount is added to your taxable income for the year and taxed at ordinary income tax rates. This requires careful planning so that the conversion stays within a tax bracket that minimizes the tax cost.

Roth conversions also reduce future required minimum distributions (RMDs), because Roth IRAs are not subject to RMDs during the owner’s lifetime.

Why the “12% Roth Conversion” Strategy Is Still Useful in 2026

The idea behind a 12% Roth conversion is to use the width of the 12% federal income tax bracket to convert pre-tax retirement assets without triggering a jump into the 22% bracket.
In 2026, the federal income tax system still has a 10%, 12%, 22%, 24%, 32%, 35% and 37% structure.

Planning your conversions to fill up the 12% bracket means you’re paying tax at a relatively low marginal rate while preserving room in higher brackets for other income like Social Security, pensions, or RMDs.

2026 Tax Brackets Matter

Because IRS inflation adjustments happen annually, the exact income range for the 12% bracket changes each year. In 2026, the 12% bracket remains a meaningful range that many pre-retirees can use efficiently before conversions push them into 22%.

The standard deduction for 2026 has also increased. For a married couple filing jointly in 2026, the 12% bracket goes all the way up to $100,800 in taxable income. With a standard deduction of $32,200, a couple can have gross income up to $133,000 and remain inside of the 12% tax bracket. So if your joint income is under $133,000, this is for you.

In this context, a Roth conversion strategy that fills up the 12% bracket can be especially useful when done in lower income years before RMDs begin. It may also be beneficial to defer starting Social Security for several years, if you are able to wait.

How a 12% Roth Conversion Actually Works in Practice

Step-by-Step Thinking

1) Estimate Your Taxable Income Without a Conversion
Consider all retirement income (Social Security, pensions, distributions, etc.) before conversions. Your goal is to identify how much room exists in the 12% bracket after accounting for the standard deduction.
AI tools and tax software can help model this.

2) Determine Conversion Amounts That Stay Within the 12% Bracket
Once you know your base income, you can calculate how much traditional IRA/401(k) assets to convert so that you end the year at the top of the 12% bracket, not above it. This means you’re paying tax at relatively low rates and not unnecessarily increasing future Medicare premiums or other surtaxes.

3) Evaluate Interaction With Other Credits and Surcharges
Conversion decisions can impact other parts of your tax situation — like Medicare IRMAA, Social Security taxation, and capital gains. An advisor can help you model these impacts comprehensively.

Because Roth conversions add to your income, you must be careful not to push yourself into a much higher marginal bracket, where the tax cost may outweigh the benefit of tax-free growth later.

Why 2026 Is Still a Strong Year to Consider This Strategy

1. Higher Standard Deduction and Bracket Thresholds Help You Stay in Lower Rates
The 2026 standard deduction and inflation-adjusted brackets give many retirees more room to convert without hitting higher marginal rates, making conversions that stay within the 12% bracket more accessible. It remains possible that a future administration will seek to raise income tax rates, given the massive deficits we are running now.

2. Roth In-Plan Conversions Are Now Available for TSP Accounts
Starting in 2026, federal employees and retirees can convert pre-tax TSP funds directly to the Roth TSP balance within the plan, offering another tool for strategic Roth planning.

3. Roth Conversions Still Bolster Long-Term Tax Planning
Converted assets grow tax-free forever, can reduce taxable required minimum distributions later, and provide more flexible withdrawal sequencing in retirement. Your beneficiaries, such as a spouse or children, also can receive your Roth IRA tax-free.

Who Benefits Most From a 12% Roth Conversion

This strategy is most useful for:

Retirees and pre-retirees who have room in the 12% or 22% tax brackets
Years where taxable income (without conversion) is relatively low
Individuals not subject to very high Medicare IRMAA surcharges
Anyone aiming to reduce future RMDs and lifetime tax drag

For baby boomers and pre-retirees with $500,000–$5M in investable assets, this can be a powerful planning tool — especially when conversions are integrated with Social Security timing, RMD planning, and total tax modeling.

When a 12% Roth Conversion May Not Make Sense

It may not be advantageous if:

Conversion would push you into the 22% bracket or higher
You lack cash outside retirement accounts to pay the tax
You are near Medicare IRMAA thresholds that would increase premiums
You are under 65 and receive a Premium Tax Credit through Obamacare
Your projected future tax rates are lower than current rates
You need the money within 5 years. Each Conversion is subject to a 5-year waiting rule.

Conversions also cannot be undone; once you pay the tax, the decision is permanent under current law.

Additional Roth Conversion Considerations

Conversion Rules Still Apply in 2026

You must report the conversion on IRS Form 8606.
Converted amounts are taxed as ordinary income in the year of conversion.

Pro-Rata Rule for Partial Conversions: If you have multiple IRA accounts, the IRS uses the pro-rata rule to determine taxable portions of conversions.

Roth Inside Employer Plans: Some employer plans (like 401(k)s or 403(b)s) allow in-plan or in-service Roth conversions, but rules vary by plan.

How We Approach 12% Roth Conversions

At Good Life Wealth Management, we evaluate Roth conversion strategies — including 12% conversions — as part of a holistic retirement plan.
That means we:

Coordinate with Social Security timing
Model Medicare IRMAA and surtax effects
Analyze RMD interactions
Consider your overall tax picture and goals

If you’re thinking about Roth conversions and want help optimizing them within your retirement income strategy, we work with clients nationwide through remote planning and are happy to help you evaluate your situation.

👉 You might also find our Questions to Ask a Financial Advisor helpful if you are comparing advisors or considering professional guidance.

This topic is often part of a broader retirement or tax planning conversation. If you’d like help applying these ideas to your own situation, you can request an introductory conversation here.

Frequently Asked Questions

What is a 12% Roth conversion?
A 12% Roth conversion means converting just enough pre-tax retirement dollars into a Roth IRA so that the conversion income fits within the 12% tax bracket, avoiding higher marginal tax rates.

Can I do a Roth conversion inside my 401(k) or TSP?
Some plans allow in-plan Roth conversions, including new options for Roth TSP conversions starting in 2026, but plan rules vary — check with your administrator.

Is the 12% Roth Conversion Right for Everyone?
No, there are many individual circumstances to consider.. For example, if you plan to leave your IRA to charity, conversions are an unnecessary tax.

Can I also make Roth 401(k) Contributions?

Yes, if you are a participant in a 401(k) or 403(b) plan, you may have the option to make Roth contributions (after-tax). And if you still have room in your tax bracket, you can make a Roth conversion on a Traditional IRAs or 401(k) balances, too.

Related Retirement Income Topics
– Retirement Income Planning
– Guardrails Withdrawal Strategy
– Social Security: It Pays to Wait
– Required Minimum Distributions
– What Is a MYGA?

SECURE Act Abolishes Stretch IRA

Posted On January 20, 2020 By Scott Stratton, CFP(R), CFA In Financial Planning, Retirement Planning /

The SECURE Act passed in December and will take effect for 2020. I’m glad the government is helping Americans better face the challenge of retirement readiness. As a nation, we are falling behind and need to plan better for our retirement income.

It’s highly likely that the SECURE Act will directly impact you and your family. Six of the changes are positive, but there’s one big problem: the elimination of the Stretch IRA. We’re going to briefly share the six beneficial new rules, then consider the impact of eliminating the Stretch IRA.

Changes to RMDs and IRAs

1. RMDs pushed to age 72. Currently, you have to begin Required Minimum Distributions from your IRA or 401(k) in the year in which you turn 70 1/2. Starting in 2020, RMDs will begin at 72. This is going to be helpful for people who have other sources of income or don’t need to take money from their retirement accounts. People are living longer and working for longer, so this is a welcome change.

2. You can contribute to a Traditional IRA after age 70 1/2. Previously, you could no longer make a Traditional IRA contribution once you turned 70 1/2. Now there are no age limits to IRAs. Good news for people who continue to work into their seventies!

3. Stipends, fellowships, and home healthcare payments will be considered eligible income for an IRA. This will allow more people to fund their retirement accounts, even if they don’t have a traditional job.

529 and 401(k) Enhancements

4. 529 College Savings Plans. You can now take $10,000 in qualified distributions to pay student loans or for registered apprenticeship programs.

5. 401(k) plans will cover more employees. Small companies can join together to form multi-employer plans and part-time employees can be included

6. 401(k) plans can offer Income Annuities. Retiring participants can create a guaranteed monthly payout from their 401(k).

No More Stretch IRAs

7. The elimination of the Stretch IRA. This is a problem for a lot of families who have done a good job building their retirement accounts. As a spouse, you will still be allowed to roll over an inherited IRA into your own account. However, a non-spousal beneficiary (daughter, son, etc.) will be required to pay taxes on the entire IRA within 10 years.

Existing Beneficiary IRAs (also known as Inherited IRAs or Stretch IRAs) will be grandfathered under the old rules. For anyone who passes away in 2020 going forward, their IRA beneficiaries will not be eligible for a Stretch.

If you have a $1 million IRA, your beneficiaries will have to withdraw the full amount within 10 years. And those IRA distributions will be taxed as ordinary income. If you do inherit a large IRA, try to spread out the distributions over many years to stay in a lower income tax bracket.

For current IRA owners, there are a number of strategies to reduce this future tax liability on your heirs.
Read more: 7 Strategies If The Stretch IRA Is Eliminated

If you established a trust as the beneficiary of your IRA, the SECURE Act might negate the value and efficacy of your plan. See your attorney and financial planner immediately.

IRA Owners Need to Plan Ahead

The elimination of the Stretch IRA is how Congress is going to pay for the other benefits of the SECURE Act. I understand there is not a lot of sympathy for people who inherit a $1 million IRA. Still, this is a big tax increase for upper-middle class families. It won’t impact Billionaires at all. For the average millionaire next door, their retirement account is often their largest asset, and it’s a huge change.

If you want to reduce this future tax liability on your beneficiaries, it will require a gradual, multi-year strategy. It may be possible to save your family hundreds of thousands of dollars in income taxes. To create an efficient pre and post-inheritance distribution plan, you need to start now.

Otherwise, Uncle Sam will be happy to take 37% of your IRA (plus possible state income taxes, too!). Also, that top tax rate is set to go back to 39.6% after 2025. That’s why the elimination of the Stretch IRA is so significant. Many middle class beneficiaries will be taxed at the top rate with the elimination of the Stretch IRA.

From a behavioral perspective, most Stretch IRA beneficiaries limit their withdrawals to just their RMD. As a result, their inheritance can last them for decades. I’m afraid that by forcing beneficiaries to withdraw the funds quickly, many will squander the money. There will be a lot of consequences from the SECURE Act. We are here to help you unpack these changes and move forward with an informed plan.

Using the ACA to Retire Early

Posted On January 15, 2020 By Scott Stratton, CFP(R), CFA In Retirement Planning /

A lot of people want to retire early. Maybe you’re one of them. The biggest obstacle for many is the skyrocketing cost of health insurance. It’s such a huge expense that some assume they have no choice but to keep working until age 65 when they become eligible for Medicare.

However, if you can carefully plan out your retirement income, you may be eligible for a Premium Tax Credit (PTC). What’s the PTC? It’s a tax credit for buying an insurance plan on the health exchange, under the Affordable Care Act (“Obamacare”). The key is to know what the income levels are and what counts as income. Then, use other savings or income until after the year in which you reach age 65 and enroll in Medicare. If we can bridge those years, maybe you can retire early by having the PTC cover a significant portion of your insurance premiums.

ACA Income Levels

You are eligible for a PTC if your income is between 100% and 400% of the Federal Poverty levels. For a single person, those income amounts are between $12,140 and $48,560 for 2019. For a married couple, your income would need to be between $16,460 and $65,840. The lower your income, the larger your tax credit. Please note that if you are married filing separately, you are not eligible for the PTC. You must file a joint return.

The PTC will be based on your estimate of your 2020 income. If your actual income ends up being higher, you have to repay the difference. So it is very important that you understand how “income” is calculated for the PTC.

Under the ACA, income is your “Modified Adjusted Gross Income” (MAGI). Unfortunately, MAGI is not a line on your tax return. MAGI takes your Adjusted Gross Income and adds back items such as 100% of your Social Security benefits (which might have been 50% or 85% taxable), Capital Gains, and even tax-free municipal bond interest.

Premium Tax Credit

Here are some examples of the Premium Tax Credit, based on Dallas County, Texas, for non-tobacco users:

Single Male, age 63 with $45,000 income would be eligible for a PTC of $580 a month
Single Male, age 63 with $25,000 income, PTC increases to $811 a month.
Married couple (MF) age 63, with $60,000 income would have a PTC of $1,404/month
Married couple (MF) age 63, with $40,000 income would have a PTC of $1,633/month

(Same sex couples are eligible for a PTC under the same rules. They must be legally married and file a joint tax return.)

For this last example of a 63 year old couple making $40,000, the average cost of a plan after the Premium Tax Credit would be $332 (Bronze), $428 (Silver), or $495 (Gold) a month, for Dallas County. That’s very reasonable compared to a regular individual plan off the exchange, or COBRA.

Check your own rates and PTC estimate on Healthcare.gov

Understand ACA Income

Here’s how you can minimize your income to maximize your ACA tax credit and retire before 65:

Don’t start Social Security or a Pension until at least the year after you turn 65. If you start taking $2,000 a month in income, it means you could lose a $1,400 monthly tax credit.
Don’t take withdrawals from your Traditional IRA or 401(k). Those distributions count as ordinary income.
You can however take distributions from your Roth IRA and that won’t count as income for the PTC. Just make sure you are age 59 1/2 and have had a Roth open for at least five years.
Build up your savings so you can pay your living expenses for these bridge years until age 65.
If you have investments with large capital gains, sell a year before you sign up for the ACA health plan. Although you might pay 15% long-term capital gains tax, you can avoid having those sales count as MAGI in the year you want a PTC.
In your taxable account, sell funds or bonds with low taxable gains in the years you need the PTC. That can be a source of liquidity. Rebalance in your IRA to avoid creating additional gains.
You can pay or reimburse yourself from a Health Savings Account (HSA) for your qualified medical expenses. Those are tax-free distributions.
If you still have earned income when “retired”, a Traditional IRA (if deductible) or a 401(k) contribution will reduce MAGI.
If you sell your home (your primary residence), and have lived there at least two of the past five years, then the capital gain (of up to $250,000 single or $500,000 married) is not counted towards MAGI for the ACA.

Minimum Income for the ACA

An important point: your goal is not to reduce your income to zero. If you do not have income of at least 100% of the poverty level, you are ineligible for the PTC. Instead, you will be covered by Medicaid. That’s not necessarily bad, but to get a large tax credit and use a plan from the exchange, you need to have income of at least $12,140 (single) or $16,460 (married).

Retire Early with the ACA

If you can delay your retirement income until after 65, you may be eligible for the Premium Tax Credit. This planning could add years to your retirement and avoid having to wait any longer. If you want to retire before 65, let’s look at your expenses and accounts. We can create a budget and plan to make it happen using the Premium Tax Credit.

Consider, too, that the plans on the exchange may have different deductibles and co-pays than your current employer coverage. Check if your existing doctors and medications will be covered in-network. Create an estimate of what you might pay out-of-pocket as well as what your maximum out-of-pocket costs would be.

Good Life Wealth is here to be your guide and partner to make early retirement happen. We are a fiduciary planning firm, offering independent advice to help you achieve the Good Life. Email Scott@goodlifewealth.com to learn more.

7 Strategies If The Stretch IRA is Eliminated

Posted On July 26, 2019 By Scott Stratton, CFP(R), CFA In Retirement Planning /

On May 31, I sent a newsletter about US House of Representatives approving the SECURE Act and six changes it would create for retirement plans. To pay for the cost of new rules, like extending the RMD age from 70 1/2 to 72, the legislation proposes to eliminate the Stretch IRA starting in 2020. While the Senate has yet to finalize their own version of this legislation, odds are good that something is going to get passed. And if the Stretch IRA manages to survive this time, it will likely be back on the chopping block in the near future.

A Stretch IRA, also known as an Inherited IRA or Beneficiary IRA, allows the beneficiary of an IRA to continue to enjoy the tax-deferred growth of the IRA and only take relatively small Required Minimum Distributions over their lifetime. Congress has recognized that while they want to encourage people to contribute to IRAs to save for their retirement, they’re not as happy about the IRAs being used as an Estate Planning tool.

If you have a large IRA, one million or more, you might have more in assets than you will need to spend. If you leave it to your spouse, they can still roll it into their own IRA and treat it as their own. Once the Stretch IRA is eliminated, and you leave the IRA to someone other than a spouse, they will have to withdraw the entire IRA within 10 years. Those distributions will be treated as ordinary income and there could be substantial taxes on a seven-figure IRA.

Now is the time to start planning for the end of the Stretch IRA. There are ways that could potentially save many thousands in taxes on a million dollar IRA. But these methods may take years to work, so it pays to start early. Here are seven considerations:

1. Charitable Beneficiary. If you are planning to leave money to a charity (a church, arts organization, university, or other charity), make that bequest through your IRA rather than from your taxable estate. The charity will receive the full amount and as a tax-exempt organization, not owe any taxes on the distribution. It will be much more tax efficient to leave taxable assets to individual beneficiaries and IRA assets to charities than the reverse.

2. QCD. Better than waiting until you pass away, you can donate up to $100,000 a year in Qualified Charitable Distributions after age 70 1/2 that count towards your RMD. This reduces your IRA but preserves a tax benefit today, which is even better than leaving it as an inheritance. Plus you get to see the good your donation can make while you are still alive. (And you don’t have to itemize your tax return; the QCD is an above the line deduction.)

3. Start withdrawals at age 59 1/2. The traditional approach to IRAs was to avoid touching them until you hit 70 1/2 and had to start RMDs. With today’s lower tax brackets, if you have a very large IRA, it may be preferable to start distributions as early as 59 1/2 and save that money in a taxable account.

For a married couple, the 24% tax bracket goes all the way up to $321,450 (2019). Those rates are set to sunset after 2025. Additionally, while any future growth in an IRA will eventually be taxed as ordinary income, IRA money that is withdrawn and invested in ETFs now will become eligible for the preferential long-term capital gains rate of 15%. Your future growth is now at a lower tax rate outside the IRA.

4. If you’re going to take annual distributions and pay the tax gradually, an even better way is through Roth Conversions. Once in the Roth, you will pay no tax on future growth and you heirs can receive the Roth accounts income tax-free. Conversions don’t count as part of your RMD, so the best time to do this may be between 59 1/2 and 70 1/2. Look at gradually making partial conversions that keep you within a lower tax bracket.

5. A lot of owners of large IRAs want to leave their IRA to a Trust to make sure the funds are not squandered, mismanaged, or taken by a child’s spouse. Unfortunately, Trust taxes are very high. In fact, Trusts reach the top tax rate of 37% once they hit just $12,750 in taxable income. In the past, trust beneficiaries were able to still use the Stretch IRA rules even with a Trust. However, if the Stretch IRA is eliminated, most of these IRA Trusts are going to pay an egregious amount of taxes.

One alternative is to establish a Charitable Remainder Trust (CRT). This would allow for annual income to be provided to your beneficiaries just like from a Stretch IRA, but once that beneficiary passes away, the remainder is donated to a charity. This preserves significant tax benefits as the initial IRA distribution to the CRT is non-taxable. The downside is that there are no lump sum options and the payments will not continue past the one generation named as beneficiaries.

Still, if you have a Trust established as the beneficiary of your IRA, you will want to revisit this choice very carefully if the Stretch IRA is eliminated.

6. Life Insurance. I usually recommend Term Insurance, but there is a place for permanent life insurance in estate planning. If the Stretch IRA is repealed, it may be more efficient to use your IRA to pay for $1 million in life insurance than to try to pass on a $1 million IRA. Life insurance proceeds are received income tax-free by the beneficiary.

For example, a healthy 70 year old male could purchase a Guaranteed Universal Life Policy with a $1 million death benefit for as little as $24,820.40 a year. Take the RMD from your $1 million IRA and use that to pay the life insurance premiums. Now your heirs will receive a $1 million life insurance policy (tax-free) in addition to your $1 million IRA. This policy and rate are guaranteed through age 100. If you don’t need income from your IRA, this could greatly increase the after-tax money received by your heirs.

7. If you are an unmarried couple, you might want to consider if it would be beneficial to be married so that one spouse could inherit the other’s IRA and be able to treat it as their own.

The elimination of the Stretch IRA has been proposed repeatedly since 2012. In some ways, its repeal is a new inheritance tax. Billionaires typically have little or insignificant IRA assets compared to the rest of their wealth and have access to complex trust and legal structures. However, working professionals who have diligently created a net worth of $1 to 4 million, likely have a substantial amount of their wealth in their retirement accounts. And these are the families who will be impacted the most by the elimination of the Stretch IRA.

If you are planning on leaving a substantial retirement account to your beneficiaries, let’s talk about your specific situation and consider what course of action might be best for you.

6 Changes Congress Wants to Make to Your Retirement Plan

Posted On July 12, 2019 By Scott Stratton, CFP(R), CFA In Retirement Planning / 1 Comment

In a rare bipartisan vote of 417-3, the House of Representatives approved the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The Act now goes to the Senate, which may make modifications, but is likely to still pass and reconcile a version of this legislation.

The version passed by the House has provisions which will indeed enhance 401(k)s, IRAs, and other retirement plans for all Americans. Hopefully, this will get more people saving and starting their contributions at a younger age. There are also provisions which will help retirees and people over age 70.

Here’s a partial list of the changes in the legislation:

Pushing back the age for Required Minimum Distributions (RMDs) from 70 1/2 to 72.
Allowing workers over age 70 1/2 to continue to contribute to a Traditional IRA.
Allowing up to $5,000 in penalty-free withdrawals from IRAs to cover birth or adoption expenses for parents (taxes would still apply, but the 10% penalty would be waived).
Allowing up to $10,000 in withdrawals from 529 College Savings Plans to pay off student loans.
Requiring 401(k) statements to show participants how much monthly income their balance could provide.
Eliminating the “Stretch IRA”, also known as the Inherited or Beneficiary IRA. Currently, a beneficiary can take withdrawals over their lifetime. Instead, they will be required to withdraw all the money – and pay taxes – within 10 years.

The first two reflect the reality of how poorly prepared some Baby Boomers are for retirement and that more people are working well into their seventies today. Pushing back the RMD age will help people save for longer and reflects that life expectancy has gone up significantly since the original RMD rules were established decades ago.

Cut Expenses, Retire Sooner

Posted On May 31, 2019 By Scott Stratton, CFP(R), CFA In Retirement Planning /

While we use robust retirement planning software to carefully consider retirement readiness, many of these scenarios end up strikingly close to the familiar “four percent rule”. The four percent rule suggests that you can start with 4% withdrawals from a diversified portfolio, increase your spending to keep up with inflation, and you are highly likely to have your money last for a full retirement of 30 years or more. (Bengen, 1994, Journal of Financial Planning)

Under the four percent rule, If you have one million dollars, you can retire and withdraw $40,000 a year in the first year. If you need $5,000 a month ($60,000 a year), you would want a nest egg of at least $1.5 million. If your goal is $8,000 a month, you need to start with $2.4 million.

We spend a lot of time calculating your finish line and trying to figure out how we will get there. Once we have that target dollar amount for your portfolio, then we can work backwards and figure how much you need to save each month, what rate of return you would need, and how long it would take. Is your investment portfolio likely to produce the return you require? If not, should we change your allocation?

What we should be talking about more is How can you move up your finish line? When you reduce your monthly expenses, you can have a smaller nest egg to retire and could consider retiring sooner. In fact, under the four percent rule, for every $1,000 a month you can reduce your needs, we can lower your finish line by $300,000. Think about that! For every $1,000 a month in spending, you need $300,000 in assets!

If you can trim your monthly budget from $5,000 to $4,000, you’ve just reduced your finish line from $1.5 million to $1.2 million. It’s not my place to tell people to cut their “lifestyle”, but if you come to the conclusion that it is in your best interest to reduce your monthly needs, then we can recalculate your retirement goals and maybe get you started years earlier.
Cutting your expenses is easier said than done, but let’s start with five key considerations.

1. Determine your fixed expenses and variable expenses. Start with your fixed expenses – those you pay every month. Housing, car payments, insurance, and memberships are key areas to look for savings. Personally, I like to see people enter retirement having paid off their mortgage and being debt free. In many cases, it may be helpful to downsize as well, which can reduce your monthly costs or free up equity to add to your portfolio. Downsizing or relocating often also lowers your taxes, insurance, utilities, and maintenance costs.

Your house is a liability. It is an ongoing expense. Often, it is your largest expense and therefore the biggest demand on your retirement income needs. (And now 90% of taxpayers don’t itemize and don’t get a tax break for their mortgage interest or property taxes.)

2. Insurance costs are surprisingly different from one company to another. Unfortunately, it does not pay to be loyal to one company. If you’ve had the same home and auto policy for more than five years, you may be able to reduce that cost significantly. If you’d like a referral to an independent agent who can compare top companies for you and make sure you have the right coverage, please send me a reply and I’d be happy to make an introduction.

3. When creating your retirement budget, make sure to include emergencies and set aside cash for maintenance and upkeep of your home and vehicles. Just because you didn’t have any unplanned expenses in the past 12 months doesn’t mean that you can project that budget into the future.

You will need to replace your cars and should plan for this as an ongoing expense. If you can go from being a two or three car family to a one car family in retirement, that could also be a significant saving. If you only need a second car a few days a month, it may make sense to ditch the car and just use Uber when you need it.

7 Ways for Women to Not Outlive Their Money

Posted On March 31, 2019 By Scott Stratton, CFP(R), CFA In Retirement Planning /

Once a month, my brass quintet goes to a retirement home/nursing home and plays a concert for the residents. Over the past 15 years, I’ve visited more than 100 locations in Dallas. They run the gamut from Ritz-Carlton levels of luxury to places that, well, aren’t very nice and don’t smell so great.

What all these places do have in common is this: 75 to 80 percent of their residents are women. Women outlive men, and in many marriages, the husband is older. Wives are outliving their husbands by a substantial number of years. While no one dreams of ending up in a nursing home, living alone at that age is even more lonely, unhealthy, and perilous.

For women who have seen their own mother, aunt, or other relative live to a grand old age, you know that there are many older women who are living in genuine poverty in America today. Husbands, you may not worry about your old age or what happens to you, but certainly you don’t wish to leave your wife in dire financial straits after you are gone.

Longevity risk – the risk of outliving your money – is a primary concern for many women investors. A good plan to address longevity begins decades earlier. Here are some of the best ways to make sure you don’t outlive your money.

1. Delay Social Security benefits. Social Security is guaranteed for life and it is often the only source of guaranteed income that will also keep up with inflation, through Cost of Living Adjustments. By waiting from age 62 to age 70, you will receive a 76% increase in your monthly Social Security benefit. For married couples, there is a survivorship benefit, so if the higher earning spouse can wait until 70, that benefit amount will effectively apply for both lives. Husbands: even if you are in poor health, delaying your SS benefit will provide a higher benefit for your wife if she should outlive you.Read more: Social Security: It Pays to Wait

2. Buy a Single Premium Immediate Annuity (SPIA) when you retire. This provides lifetime income. The more guaranteed income you have, the less likely you will run out of money to withdraw. While the implied rate of return is not terribly high on a SPIA, you could consider that purchase to be part of your allocation to bonds. Read more: How to Create Your Own Pension

3. Delay retirement until age 70. If you can work a few more years, you can significantly improve your retirement readiness. This gives you more years to save, for your money to grow, and it reduces the number of years you need withdrawals by a significant percentage. Read more: Stop Retiring Early, People!

4. Don’t need your RMDs? Look into a QLAC. A Qualified Longevity Annuity Contract is a deferred annuity that you purchase in your IRA. By delaying benefits (up to age 80), you get to grow your future income stream, while avoiding Required Minimum Distributions.Read more: Longevity Annuity

5. Invest for Growth. If you are 62 and retiring in four years, your time horizon is not four years, you are really investing for 30 or more years. If your goal is to not run out of money and to maintain your purchasing power, putting your nest egg into cash might be the worst possible choice. Being ultra-conservative is placing more importance on short-term volatility avoidance than on the long-term risk of longevity.

6. Don’t blow up your investments. Here’s what we suggest:

Don’t buy individual stocks. Don’t chase the hot fad, whether that is today’s star manager, sector or country fund, or cryptocurrency. Don’t get greedy.
No private investments. Yes, some are excellent, but the ones that end up being Ponzi schemes also sound excellent. Seniors are targets for fraudsters. (Like radio host Doc Gallagher arrested this month in Dallas for a $20 million Ponzi scheme.)
Determine a target asset allocation, such as 60% stocks and 40% bonds (“60/40”), and either stick with it, or follow the Rising Equity Glidepath.
Use Index funds or Index ETFs for your equity exposure. Keep it simple.- Get professional advice you can trust.

7. Consider Long-Term Care Insurance. Why would you want that? Today’s LTCI policies also offer home care coverage, which means it might actually be thing which saves you from having to move to an assisted living facility. These policies aren’t cheap: $3,000 to $5,000 a year for a couple at age 60, but if you consider that assisted living would easily be $5,000 a month down the road, it’s a policy more people should be considering. Contact me for more information and we can walk you through the process and offer independent quotes from multiple companies.

There is no magic bullet for longevity risk for women, but a combination of these strategies, along with saving and creating a substantial retirement nest egg, could mean you won’t have to worry about money for the rest of your life. The best time to start planning for your future is today.

7 Missed IRA Opportunities (Updated for 2026)

Posted On March 31, 2019 By Scott Stratton, CFP(R), CFA In Retirement Planning, Tax Strategies /

Many investors assume they are not eligible to contribute to an IRA, often because their income is “too high” or because they are no longer working full-time. In practice, those assumptions are frequently wrong.

Over the years, I’ve seen many thoughtful, financially responsible investors miss perfectly legal and valuable IRA opportunities simply because they misunderstood the rules.

This article highlights seven common situations where investors think they can’t contribute to an IRA — but actually can.

Many of these overlooked IRA opportunities become clear only when viewed through the lens of long-term tax planning for retirees, rather than focusing on eligibility rules in isolation.

1. You’re Married and Only One Spouse Is Working (Spousal IRA)

A surprisingly common misconception is that each spouse must have earned income to contribute to an IRA.

That is not true.

If you are married filing jointly and one spouse has earned income, the non-working spouse may still contribute to an IRA using a Spousal IRA.

Key points for 2026:

Contributions are based on combined earned income
Each spouse can contribute up to the annual IRA limit
The account is owned individually, not jointly

This is often overlooked when one spouse steps away from work to raise children, care for family, or transitions into early retirement.

2. You Earn Too Much for a Roth IRA (But Not for a Traditional IRA)

Many investors correctly understand that Roth IRA contributions have income limits, but then incorrectly assume that means no IRA contributions at all.

That is not the case.

Even if your income exceeds Roth limits:

You may still contribute to a Traditional IRA
The contribution may be non-deductible, but it still offers tax-deferred growth
Non-deductible contributions can later be coordinated with Roth conversion strategies

Eligibility and deductibility are two separate concepts — and confusing them causes many investors to miss opportunities.

3. You’re Not Covered by an Employer Retirement Plan

Here is one of the most misunderstood IRA rules.

If neither you nor your spouse is covered by a workplace retirement plan, then:

There are no income limits on deducting a Traditional IRA contribution
You may be able to fully deduct the contribution, regardless of income

Many investors mistakenly believe income alone disqualifies them, when in reality coverage by an employer plan is the key factor.

This is especially relevant for:

Small business owners
Consultants
Part-time workers
Early retirees with earned income

4. You Are Self-Employed (SEP IRA Opportunity)

Self-employed individuals often assume they’ve “missed the boat” on retirement savings if they didn’t set up a 401(k).

In reality, SEP IRAs remain a powerful and flexible option.

For 2026:

Contributions are based on net self-employment income
SEP IRAs allow significantly higher contribution limits than traditional IRAs
Contributions are deductible and can be made up until the tax filing deadline (including extensions)

This is commonly missed by freelancers, consultants, and small business owners who underestimate what they are allowed to do.

5. You Can Contribute to Both a SEP IRA and a Roth IRA

Another frequent misunderstanding is assuming you must choose one type of IRA only.

In fact:

A SEP IRA contribution does not prevent you from contributing to a Roth IRA (if income allows)
These serve different planning purposes: current deduction vs. tax-free growth

Used together thoughtfully, they can provide valuable tax diversification.

6. You Think You’re “Too Old” to Contribute

Prior to 2020, age limits restricted Traditional IRA contributions. That rule no longer exists.

As long as you have earned income:

You may contribute to a Traditional IRA at any age
Roth IRA contributions also have no age limit (subject to income rules)

This is especially helpful for:

Part-time workers in their 60s or 70s
Individuals consulting after “retirement”
Spouses with earned income later in life

7. You Assume IRA Contributions Aren’t Worth It Anymore

Some investors believe IRA contributions are only useful early in life and lose relevance as retirement approaches.

That thinking overlooks:

The power of tax-deferred or tax-free growth
The role IRAs play in retirement income planning
How IRA balances interact with RMDs, Medicare premiums, and tax brackets

Even modest contributions, when coordinated properly, can improve long-term outcomes.

For broader context, see:

Why These Opportunities Get Missed

Most missed IRA opportunities are not the result of carelessness. They happen because:

IRS rules are complex and nuanced
Eligibility depends on multiple variables
Many investors rely on outdated or incomplete information
General rules are applied without considering personal circumstances

This is why thoughtful planning — not just contribution limits — matters.

How a Fiduciary Advisor Can Help

Part of my role as a fiduciary advisor is helping clients understand what they are actually eligible to do, not just what they’ve been told they can’t do.

That includes:

Reviewing earned income and coverage rules
Coordinating IRA decisions with tax planning
Ensuring contributions align with broader retirement goals
Avoiding missed opportunities due to misunderstandings

You don’t need aggressive strategies — you need clarity and accuracy. This topic is often part of a broader retirement or tax planning conversation. If you’d like help applying these ideas to your own situation, you can request an introductory conversation here.

Frequently Asked Questions

Can a non-working spouse contribute to an IRA?
Yes. If you file jointly and your spouse has earned income, a non-working spouse can contribute to an IRA using a Spousal IRA.

Can I deduct a Traditional IRA if my income is high?
Possibly. If you are not covered by an employer retirement plan, income limits may not apply.

Can I contribute to a SEP IRA and a Roth IRA?
Yes, provided you meet the eligibility rules for each.

Unplanned Retirement

Unplanned Retirement Steps

Be Prepared for the Unexpected

Retirement Income at Zero Percent

1. Don’t Invest For Income

2. Create a Cash Buffer

3. Guaranteed Income

Conclusion

SECURE Act Abolishes Stretch IRA

Changes to RMDs and IRAs

529 and 401(k) Enhancements

No More Stretch IRAs

IRA Owners Need to Plan Ahead

Using the ACA to Retire Early

ACA Income Levels

Premium Tax Credit

Understand ACA Income

Minimum Income for the ACA

Retire Early with the ACA

7 Strategies If The Stretch IRA is Eliminated

6 Changes Congress Wants to Make to Your Retirement Plan

Cut Expenses, Retire Sooner

7 Missed IRA Opportunities (Updated for 2026)

1. You’re Married and Only One Spouse Is Working (Spousal IRA)

2. You Earn Too Much for a Roth IRA (But Not for a Traditional IRA)

3. You’re Not Covered by an Employer Retirement Plan

4. You Are Self-Employed (SEP IRA Opportunity)

5. You Can Contribute to Both a SEP IRA and a Roth IRA

6. You Think You’re “Too Old” to Contribute

7. You Assume IRA Contributions Aren’t Worth It Anymore

Why These Opportunities Get Missed

How a Fiduciary Advisor Can Help

Frequently Asked Questions

Information

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