Tip of the Month | March 2022


Written By: Kevin Reardon, CFP®

Retirement Income Strategies for High-Net-Worth Individuals

For our high-net-worth clients approaching and in retirement, you may have the ability to manage your way into a lower tax bracket compared to when you were working. Here are some factors that might help you achieve that:

  • If still working, maximize pre-tax retirement contributions to 401k/403b plans, as well as deferred compensation plans.
  • Maximize charitable deductions during your highest income years by clumping future charitable contributions into a Donor Advised Fund (DAF).
  • Review your Social Security benefits and be mindful of other income sources and planning opportunities before you begin this benefit.
  • Review any pension plans and the various benefit options to either facilitate a lump sum rollover to an IRA or begin a lifetime income stream.
  • Review appreciated securities in non-qualified brokerage accounts. Frequently, high-net-worth clients with no salary/wage early in retirement can find themselves in the 12% Federal Income tax bracket. In this instance, you are able to realize some long-term capital gains at a 0% tax rate.
  • Identify potential Required Minimum Distributions (RMDs) at your future age of 72. Your eventual RMDs could push you into a higher tax bracket. Pre-emptive withdrawals or Roth conversions may help lower your lifetime tax liability.
  • Once you turn age 72, charitable contributions should typically come from your IRA in the form of Qualified Charitable Distributions (QCDs).
  • Beneficiaries receive a step-up in basis on all appreciated securities you own in non-qualified accounts at death.  Be mindful of realizing substantial capital gains when you are approaching mortality.
  • Your Medicare premiums are a function of your income. If your income goes $1 over a given threshold, it will trigger a higher Medicare surcharge.
  • A 3.8% Net Investment Income Tax occurs as your income exceeds a certain threshold. Be mindful of this added tax when are structuring your income.

There are many considerations when structuring your retirement income. The most successful plans take a long-term approach in orchestrating your various income sources, so they maximize your opportunities and minimize your lifetime taxes. Consult your Shakespeare Team to review your Retirement Income Plan.