John, good to see you. We have a big one today, how to optimize your RMDs in retirement. Required minimum distributions, whether you need that money or not, the government is going to force you to take those distributions so that they can collect their taxes, but proactive planning means that you control your tax liability. So let's start with what we need to know about RMDs, because the rules changed recently with the passage of the secure Act.

Yeah, and you know, the Secure Act and the Secure Act 2.0, really were kind of like that game, red light, green light, go. They flipped the whole required minimum distribution landscape, and, for that matter, the estate planning landscape on its head. And you know, in the last couple years, we've seen RMDs, or required minimum distributions, go from 70 and a half to 72 to 73 to 75 depending on your date of birth. So really quick, for the audience, if you haven't seen our videos before, a required minimum distribution is any, it's an amount that the government is going to force you to take at your RMD based on your date of birth. So we really have to understand that this is one of the tax “gotchas” in retirement, the tax torpedoes. And folks, I see a lot of people, I talk with a lot of people who have no plan for RMDs. So let's get at it Erin.

I know, so let's start them with those three strategies that you suggest. And the first one would be one of your favorites, Roth conversions, and that's because Roths don't have RMDs.

Yes, it is a fan favorite of mine, the Roth conversions. You nailed it. It doesn't have RMDs, so you're not required to take out that money. So you know, Roth conversions, I like to take us back to the 80s, Erin, the Nintendo days, the days where we played the game of Tetris. Whereas as a young parent, I can now fix fit everything in the SUV for my son's baseball and my daughter's soccer and whatnot. But with the Roth conversion, we, as those blocks are dropping in Tetris, we are strategically putting blocks in certain places, at a controlled tempo, right? And when we're looking at this from a tax sense, we are paying taxes at a rate we understand to safeguard against the unknown tax certainty. And it doesn't matter if taxes stay the same or go up, RMDs are different, right? If you don't need the money, and you're now forced to take excess distributions. The Roth conversions can solve this problem. So you want to be able to sit there strategically, pay taxes at a rate you understand, because if you don't, all of a sudden, you're at RMD age, and just like the game of Tetris, the blocks are falling quicker and quicker, and when you need that crooked block, you get the straight block, and things just don't go to plan, and you end up paying taxes at a much higher rate. And your tax dollars, your hard earned dollars are more going to the IRS and their tax dollars.

Right. Next, you say, plan for strategic withdrawals before you reach RMD age to manage your tax brackets and potentially reduce the size of future RMDs.

Yes, and this is very counterintuitive, and probably this one of the most psychologically challenging things that today's retiree has. We see it all the time in the office. Retirees want to claim their social security and let that IRA continue to build right because that's what they're used to. They're used to that psychological approach of getting the paycheck and letting their savings grow. But you have to understand, while it's a good thing to earn money in the markets, the larger that IRA grows, the larger our potential RMD and larger the potential tax bill will be. So you want to really sit back and say, “How can we make this tax efficient?” And in a lot of cases that we've seen with prospects and clients is, listen, we can combine some Roth conversions, and we're actually going to take out from your tax deferred IRA first, let other accounts, maybe a taxable or a Social Security account, grow, and we will reduce your future RMD risk and also get rid of some of that tax time bomb and tax deferred income.

And you just hit on our third strategy, that is delay taking Social Security, which can reduce your need for larger withdrawals from your retirement accounts in your later retirement years.

Yes, so again, it goes back to the counter intuitive. We see it all the time. People want to claim Social Security as soon as they can. I get it, but the experts, the algorithms, they all disagree with that. As a matter of fact, the vast majority of people take Social Security to their detriment. But folks, you have to understand an IRA dollar, 100% of that dollar is taxed. Under current tax law, at its worst, 85 cents of a Social Security dollar is taxed. Not only that, but every year you delay Social Security, you're giving yourself an 8% increase up to age 70. And Social Security money is expensive money because it buys a predictable and sustainable income stream, and it's not susceptible to RMDs, and it helps increase a survivorship benefit to the surviving spouse. So you really want to look at, perhaps in some cases, spending down from your IRA to bridge those years to age 70, maximizing your Social Security benefits. And not only are you increasing, potentially increasing your sustainable lifetime income stream, but you may be reducing your exposure to that tax time bomb, also known as a required minimum distribution. And Erin, before we leave, one other bonus tip that we didn't talk about, I’m going to throw it right now, if you're age 70 1/2, and you do want to spend down, and you're claiming standard deductions, you have the qualified charitable distribution that will give you a deduction. It also satisfies your RMD under certain conditions. So do not forget about the qualified charitable distribution. That's a bonus for all the listeners who made it to the end.

I like that once, it’s a good tease to the end. John, this was so helpful, and I feel like we have covered each of these strategies in their own separate video, which is why we want to invite people to like and subscribe to your YouTube channel to make sure they can go through all these wonderful resources at their own time. But beyond YouTube, John, how can somebody get a hold of you with questions?

Yeah, always visit our YouTube channel, or the RetireHappyPodcast.com, Tom O'Connell and I, we spent a lot of time on complex stuff. It's not a five minute video, it's a 40 to 50 minute podcast with, you know, some of the best experts in the nation. And as always, visit our website, www.gosecurus.com. From there, we have a ton of educational videos, podcasts, and while you're on the website, you can visit the Contact Us Tab where you can schedule a 20 minute complimentary phone call where we'll answer any general questions. Or you can schedule a complimentary vision and clarity consultation. Or Erin, if you like doing things the old-fashioned way, give us a call at the office, 858-935-6210, ask to speak with Emily Wale, and she will get you on my calendar.

Great John, thank you.

Thank you, Erin.