Upticks: Taxing Retirement, Senior Work Trends, Gen Z Salary Goals, and Withdrawal Frequency
By Jake Falcon on December 12, 2024
On this episode of Upticks, Jake and Cory explore the complexities of managing finances in retirement, highlighting the importance of tax strategies and flexibility. They share insights from seniors who continue to work past traditional retirement ages, discussing the personal fulfillment and health benefits they experience.
The duo explores the ambitious salary goals of Gen Z, revealing the high financial aspirations of young Americans. Finally, they address the frequency of retirement withdrawals and its potential impact on long-term portfolio sustainability.
Thank you for joining us this week! If you have a topic that you would like Jake and Cory to discuss or debate live on Upticks, please email it directly to me at luke@falconwealthadvisors.com and I’ll be sure to ask them to bring it up on the show!
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Read a summary of the conversation below:
A Taxing Retirement
Retirement is often seen as a time to relax and enjoy the fruits of one’s labor. However, managing finances during retirement can be quite complex due to the tax code. While saving for retirement is relatively straightforward, paying for retirement can be challenging. Retirees have some control over their tax bill, especially before they have to take their required minimum distribution (RMD) at age 73 or 75, depending on their birth year. Strategies include managing taxable income to take advantage of tax benefits for lower-income taxpayers or making large Roth conversions to reduce future tax liability.
Jake and Cory discussed the importance of tax flexibility for retirees. They emphasized that having a Roth IRA, a brokerage account, and a traditional IRA allows for strategic management of taxable income to help minimize taxes. However, they also noted that this requires careful planning and an understanding of the tax code to avoid unintended tax consequences. Roth conversions, while beneficial in the long run, result in immediate tax payments, which can be substantial depending on the amount converted.
Ultimately, the key takeaway is that managing finances in retirement requires careful planning. If you are not a self-proclaimed finance nerd, it might be wise to hire someone to help you navigate the complexities of the tax code and retirement planning.
Seniors Tell Why They Won’t Retire. It Isn’t About Money.
While some people count down the days until they can stop working, others, known as “never retirers,” continue working well past traditional retirement ages. These seniors genuinely enjoy their work and find personal fulfillment in it. For example, an 86-year-old highlighted in the article works seven days a week counseling high schoolers on college admissions and has no plans to retire.
Jake and Cory highlighted the health benefits of working longer, such as lower mortality rates and dementia rates, as it keeps the brain active and increases social connections. However, they also pointed out that as people get older, they may face physical challenges that make it difficult to continue working. For example, manual labor or jobs that require standing for long periods may not be suitable for older individuals.
Financial benefits are another reason why some seniors choose to continue working. Delaying retirement can increase monthly Social Security benefits and may reduce the need to withdraw money from retirement accounts early, helping to provide more financial flexibility later. However, balancing work and leisure can be challenging. Working longer may mean missing out on leisure activities or spending time with family.
Ultimately, the decision to continue working in retirement is a personal one. For some, work provides personal fulfillment and a sense of purpose. For others, retirement means having the freedom to do what they want, when they want.
The Salary Americans Say They Need to Feel Successful at Every Age—It’s Over $500,000 for Gen Z
According to a survey by Empower, the average salary Americans say they need to feel successful is a little over $270,000, which is more than three times the median household income of $80,000. Interestingly, Gen Z sets their sights even higher, with an average desired salary of over $500,000.
Jake and Cory discussed the high aspirations of young people and how ambition is a key component of the American dream. However, they also noted that these expectations might be unrealistic for most people. High salary expectations might not be attainable for everyone, and it is essential to set realistic goals.
Generational insight is another advantage of understanding salary expectations. It provides a clear picture of how different generations view financial success, which is important for employers. Understanding these expectations can help employers set realistic goals and provide a clear path for career development. However, generational disparities can lead to increased financial stress and dissatisfaction among younger generations.
Ultimately, while it is essential to have high aspirations, it is also crucial to set realistic goals and understand that achieving financial success usually takes hard work and dedication.
How Much Does the Frequency of Retirement Withdrawals Matter?
The frequency of retirement withdrawals is an interesting topic that is not often discussed. Research shows that the frequency of withdrawals does not significantly impact the long-term sustainability of a retirement portfolio, as long as the funds are invested for roughly equivalent periods.
Jake and Cory emphasized that aligning withdrawal frequency with cash flow patterns can help reduce transaction costs and improve utility. For example, if you have monthly expenses in retirement, it makes sense to take monthly withdrawals. However, if you only need money once a year to pay for personal property taxes, annual withdrawals might be more appropriate.
The key takeaway is that the frequency of withdrawals is not as important as other factors, such as portfolio volatility and taxes. Financial planners focus on aligning withdrawals with cash flow patterns and maximizing the time that money is invested.
Ultimately, the most important factor for withdrawal sustainability is maximizing the time that money is invested. While the frequency of withdrawals may add complexity, it is important to focus on the bigger picture and help ensure that withdrawals align with cash flow needs and investment goals.
Thank you for tuning in, we hope you have a great week!
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