If the Securing a Strong Retirement Act of 2021 is eventually passed by Congress and enacted into law,the age at which required minimumdistributions from retirement accountsbegin will be raised gradually to 75from 72.
But perhaps a better idea would beto raise the maximum age for claiming Social Security from 70 to 72, andto extend delayed retirement credits —which increase benefits by 8% for everyyear a retiree waits to claim — to thatage. That, contends Wade Pfau, may bea better way to give retirees a chance tospend down their IRAs and make strategic Roth conversions to help reducetaxes on their Social Security benefits.
Pfau is professor of retirementincome in the Ph.D. in Financial andRetirement Planning program at theAmerican College of Financial Services.He is a certified financial analyst andretirement income certified professionaland runs the RICP program for the college. We spoke with him recently aboutvarious retirement issues and here areexcerpts of our conversation:
Investment Advisor: In a podcast
recently, you mentioned another option
rather than Congress pushing the RMD
age to 75. Could you discuss?
Wade Pfau: If you’re doing tax-efficient
retirement planning, unless you’re not
spending anything in retirement, gen-
erally the RMDs won’t be binding on
you. Likely you’ll want to spend more
than your RMD anyway. When the RMD
age was 70, it and Social Security were
pretty well lined up. You could have this
period, if you retired before 70, [to do]
some strategic Roth conversions that
would help you to lower subsequent
taxes on your Social Security benefit.
With the way Social Security taxationworks, once people hit 70 and turn onSocial Security, delaying their RMD agelater may not have much impact. I don’tknow what the motivation of delayingthe RMD age would be.
But if you’re trying to help retireesmore, let them have further deferral onSocial Security to be more aligned withthem being able to do more strategicRoth conversions and [the like] beforeSocial Security begins. Reward themby [offering] additional delay credits onSocial Security. [Pushing the RMD backto 75] is only affecting people with a lotof assets anyway.
Then what Congress is doing is
Yeah, if you could wait till later to startSocial Security and be rewarded forit through delayed credits, that wouldjust give you more time to engage in taxstrategies so that when RMDs begin andwhen Social Security begins, you’re ineven better shape at that point. You’vegotten down the value of your IRAs[etc.] so that the RMDs are not going tobe very large.
You’re working on a new book on
strategies on spending down in
I like the idea of tax-efficient spendingstrategies. The basic starting point is aboutspending taxable assets, then tax-deferred,then tax-free. But what you’re really tryingto do is tax bracket management.
By Ginger Szala
Wade Pfau Makes Case for Raising Top
Social Security Claiming Age to 72
Letting retirees further delay claiming, while allowing benefits to rise,
would be more helpful than delaying RMDs, he tells Investment Advisor.