3 Strategies to Increase Our Retirement Income and/or Reduce Our Taxes

This video is going to show us three strategies that we can use to increase our retirement income and/or reduce our taxes.

Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, CERTIFIED FINANCIAL PLANNER™ Professional (CFP®) and host of the Retirement Income Show.

As a professional retirement income planner, the questions I received the most are Troy, how can I increase my income? How can I reduce my taxes? When do I take social security? And if something happens to me, will my spouse be okay?

I receive those questions every single day working with clients, helping to build retirement income plans, helping to build tax plans, and helping people transition from the working years into the retired years.

So we’re gonna look at three strategies that you can use to increase your income and reduce your taxes.

Now, the first one is one you’ve heard before, but I want to illustrate how powerful this concept can be. So I’m talking about deferring Social Security for as long as you can. This example is very similar to what I see on a daily basis. Somebody comes in, they say, Troy, I’m retired, I’m thinking about taking my Social Security, I’m 64 years old, I have about a million dollars saved here and I want to know, should I take from my savings, or should I go ahead and turn Social Security on?

So husband and wife both worked in this example, and I just want to show the difference. If they take Social Security now at retirement, they’re looking at about $56,000 a year, combined, and this is what we call a cost of living adjustment. So Social Security increases a little bit when you get into retirement based on the government inflation data.

Now, if they were to defer Social Security, at 71 the combined Social Security jumps to $90,000 a year, that’s guaranteed lifetime income for as long as they’re alive. So the difference is between 90,000 and 60,000 of guaranteed lifetime income, that’s $30,000 a year of additional income for as long as they’re alive.

So one of the things that happens whenever we defer Social Security here, is we want to not during the beginning years of retirement, be scared to spend money. We don’t want to be scared that we’re going to run out later in life. So if you’re going to do a deferred Social Security strategy, one of the things that really brings peace of mind and helps with the spending from the nest egg in these beginning years, is when we combine that with what we call a deferred income annuity.

So a deferred income annuity is when you make a deposit with a life insurance company, and first there’s 300 different styles of these on the marketplace, think of it like ice cream flavors, maybe Ben and Jerry’s. So this is just your plain vanilla version. Everyone, if you’re considering something like this, you need something customized to your situation, your retirement income plan, your tax plan. But with a deferred income annuity, we can make a deposit, we can get guarantees of 7%, somewhere between 6 to 8%, 7% is pretty common at the time I’m recording this video, and if we defer it for 10 years, you’re going to be guaranteed somewhere between 25 to $35,000 per year of income for life.

Now, deferred income annuities are subject to the claims paying ability of the carrier, so you want to make sure you use a highly rated carrier here. But putting money in the life insurance industry is one of the safest places you can put any money in retirement.

So the 7%, it’s a guaranteed pension account, the one catch is, whatever this grows to at 7%, you can’t just take your money out, the lump sum, if 300 grows to 600, you can’t take that 600 out. The 7% is guaranteed only if you turn it into a guaranteed lifetime income. So this is a vanilla example again, but I want to explain the power of a deferred income annuity when you combine that with a deferred Social Security strategy.

So now when we look at the deferred Social Security strategy, this helps us feel more secure while we’re deferring Social Security to take from our retirement savings, because we know, starting around age 70 to 71, we’re going to have 90,000 of Social Security income for life, and then that deferred income annuity is going to kick in, and that’s going to get you to 120 to $130,000 of guaranteed lifetime income. So that’s a floor of paychecks that are going to come in no matter what.

Now, a couple of myths about deferred income annuities. If you pass away in the deferral stage, your principal and interest goes to your family, the insurance company does not keep your money. If you need access to your $300,000 while it’s deferring, you can access that money. Typically it’s about 10% per year, $30,000 let’s say, you can go in and take out without any type of fee or penalty.

So what these two strategies are really saying is, one: they’re gonna provide us more security, two: they’re part of a retirement income plan which you need, but you also need a retirement tax plan. How are we going to reduce taxes? So that’s number three here, consider a Roth conversion, but you need a tailored Roth conversion strategy for your particular situation, and this is what we do for families every single day here at Oak Harvest.

Now in this example, you see total taxes paid in this column, the first five to six years here, we’re paying more taxes then this column, a lot less taxes. But I tell you what, taxes are on sale right now. If Macy’s was having a sale, for example, and they said it expires next Wednesday, how many of you are going to wait until Thursday before you go shopping? You know, probably not many of you. So right now, with the Trump tax cuts, we have a sale on taxes. You can either wait for the law to expire in 2026, or you can take advantage of that now because those dollars you have inside your retirement account, that’s a tax infested account, you are going to pay the piper at some point. The question is, what is the rate you’ll pay when you take money from your retirement account?

So in this example, we start doing Roth conversions, this example, we do not. The total output over the course of retirement, the Roth conversion person pays about $938,000 in taxes over the course of their retirement. The person who didn’t do the Roth conversion, over 1.4 million in taxes over the course of their retirement. So we’re talking about a difference here of over $500,000 in taxes paid for not doing the Roth conversion, versus somebody who did the Roth conversion.

Now, these are estimates and projections, of course, you should have something tailored to your particular circumstances, with your income, your investments, your risk tolerance, your longevity, but this illustrates very clearly how we can pay a lot less taxes over the course of our retirement than with doing a Roth conversion, than not.

Now this other number right here, that 2.7 million versus 2.1, this is the total amount of Social Security received by deferring until age 70 versus taking it when they retire at age 64. So it’s 2.7 million versus 2.1 million, so we’re talking about $600,000 in more income over the course of your life, by deferring Social Security, based on this example right here.
So consider deferring Social Security for as long as you can. You’ve heard that before, but these numbers really illustrate how much more income that means to your family in retirement.

Consider a deferred income annuity. Not only is this going to provide you a floor of income on top of Social Security that you’ll never outlive, but it’s going to help you feel more comfortable while you’re deferring Social Security to take from your savings and your investments to live and maintain your standard of living, because you know down the road, you’re gonna have all this guaranteed lifetime income, which is essentially like a paycheck every single month being deposited for as long as you and your spouse are alive.

And then thirdly, we want to make sure we consider a Roth conversion strategy, because we want to pay less taxes, and taxes are on sale. There are big blinking lights right now saying that taxes are on sale. So talk to a professional about doing a Roth conversion, but you need to make sure that Roth conversion strategy doesn’t just look at the taxes, it needs to look at your full retirement income picture.

And that’s what we do every single day here at Oak Harvest, helping families transition into retirement, figuring out where is the best place to take our income from, how much income should we take, how do we reduce taxes and if something happens to you, making sure that your spouse will be okay.

Reach out to us if you’d like to have this analysis done, if you’d like to sit down and go through this on a customized basis for you. The phone number to do that is 1-800-822-6434, and of course you can go to the website oakharvestfinancialgroup.com, reach out to us that way. And if you have a friend, maybe a family member or a coworker that has recently retired or is about to retire, make sure to share this video with them, hit that share button and send it to them in an email. This is valuable information that can help get them more income and pay less taxes.

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