FAQ Doc

Article | August 14, 2025

Authored by Your Firm LLC

Retirement Spending Strategy: Frequently Asked Questions

Understanding the Basics

Q: Why is retirement spending planning just as important as retirement saving?

A: Most people diligently plan the saving side of retirement but far fewer map out how those savings will be spent once the paychecks stop. Without a deliberate spending plan, you may trigger avoidable taxes, interrupt compounding interest, and erode the cushion that protects later-life needs. As Jamie Miller, CPA, Lead of Tax Services at MBN & Company, explains: "The biggest mistake I see retirees make is treating all their accounts the same way. The order in which you withdraw from different account types can literally save or cost you tens of thousands of dollars over a 20-year retirement."

Q: Is there a one-size-fits-all approach to retirement spending?

A: No single formula fits every circumstance, but a handful of tax-aware cash-flow principles can turn decades of disciplined saving into a spending strategy that protects today's needs and tomorrow's legacy. The optimal approach depends on your specific financial situation, health status, and retirement goals.

Social Security and Guaranteed Income

Q: Should I delay claiming Social Security benefits?

A: If health and family longevity suggest a normal or long life, delaying Social Security benefits can make a noticeable difference. For anyone born in 1960 or later, each year of delay after full retirement age (67) adds 8% to the benefit, so the check tops out at 124% of its base value at age 70. As Jamie Miller notes: "When clients delay their Social Security benefits from 67 to 70, they're essentially getting a guaranteed 8% annual return from the government. You can't find that kind of risk-free growth anywhere else in today's market."

Q: How much extra money can delaying Social Security provide?

A: Consider this example: If James has a full retirement age benefit of $3,000 but waits until 70, his monthly payment rises to roughly $3,720. That extra $720 every month translates to roughly $173,000 over a 20-year retirement before accounting for cost-of-living adjustments.

Q: What should I use Social Security payments for?

A: Once you start receiving Social Security, it's wise to use that guaranteed income for necessities like housing, groceries, utilities, and Medicare premiums. Since Social Security is inflation-indexed and government-backed, it's the only payment in most portfolios that remains stable when markets fall.

Q: When should I claim Social Security early?

A: When credible health issues shorten your expected lifespan, it may make sense to claim Social Security benefits early. The ideal claim date depends on health status, survivor benefits, and cash-flow needs.

Tax-Smart Withdrawal Strategies

Q: What does it mean to "spend money the IRS is taxing anyway"?

A: Dividends, interest, rental net cash flow, and mutual-fund distributions all hit your tax return even if you reinvest them. As Jamie Miller explains: "Many retirees don't realize they're creating their own tax problems by ignoring the income that's already hitting their tax return. We help clients strategically spend the money the IRS is taxing anyway to avoid unnecessary bracket creep and Medicare surcharges."

Q: What are the key tax thresholds I should be aware of in retirement?

A: Key thresholds include:

• IRMAA surcharges on Medicare Part B and D that kick in once MAGI tops $212,000 for joint filers
• Up to 85% of Social Security benefits become taxable when combined income exceeds $44,000 for joint filers
• The 3.8% Net Investment Income Tax (NIIT) applies above $250,000 of MAGI for joint filers

Q: How can I take advantage of the 0% capital gains tax bracket?

A: In 2025, a married couple pays 0% on long-term capital gains and qualified dividends until total taxable income reaches $96,700. After you determine how much ordinary income is locked in, you can "top off" the 0% band by realizing optional capital gains without owing federal tax.

Q: Can you give me an example of tax-smart spending?

A: Consider Karen and Michael, both 68, with $4,000 of bank interest and $12,000 of rental income. They direct these proceeds to property taxes and Medicare premiums. After deductions, their taxable ordinary income is around $68,000, leaving roughly $28,700 within the 0% capital gains bracket. They can collect $18,000 in qualified dividends and cash in another $10,000 in capital gain assets without exceeding the threshold, giving them $28,000 to spend tax-free.

Required Minimum Distributions (RMDs)

Q: When do I have to start taking Required Minimum Distributions?

A: SECURE 2.0 now starts most RMDs at age 73 and pushes the threshold to 75 for those turning 74 after 2032. While RMDs can't be skipped, they can be redirected.

Q: What happens if I miss an RMD?

A: A missed RMD could trigger a 25% penalty unless it is timely corrected or qualifies for a waiver.

Q: Can I donate my RMD to charity?

A: Yes, the charitably inclined can redirect up to $108,000 (indexed annually) from an IRA directly to a qualified charity through a Qualified Charitable Distribution (QCD). This removes that amount from taxable income while satisfying the RMD requirement.

Asset Positioning and Charitable Giving

Q: Where should I hold different types of investments?

A: As Jamie Miller advises: "Asset location is just as important as asset allocation in retirement. Keeping your high-yield investments in tax-deferred accounts while holding growth assets in taxable accounts can significantly reduce your annual tax burden." Interest-heavy holdings like bonds should be in tax-deferred accounts, while broad-market or growth ETFs work better in taxable accounts.

Q: How can charitable giving help with taxes in retirement?

A: Instead of writing checks, you might transfer appreciated shares into a donor-advised fund. This erases the built-in capital gain, delivers a full fair-market-value deduction, and allows strategic timing to optimize tax benefits.

Withdrawal Sequencing

Q: In what order should I withdraw from different accounts?

A: Generally, start with the highest-basis taxable shares to minimize realized gains. Once taxable reserves are depleted, dip into tax-deferred accounts, and if cash flow allows, reserve Roth dollars for last. Roth IRAs face no RMDs and grow tax-free, making them attractive for late-life or generational wealth.

Q: Is there one withdrawal order that works for everyone?

A: No single withdrawal order fits every retiree. A written plan that's re-evaluated annually can turn general guidelines into a sequence tailored to your specific circumstances.

Planning for Contingencies

Q: What unexpected costs should I plan for in retirement?

A: Critical risks to consider include:

• Healthcare: Medicare plans may have deductibles, drug gaps, and coinsurance
• Long-term care: Approximately 70% of Americans who reach 65 will require assistance with daily living
• Information management: Secure storage of important documents and clear succession planning

Q: How much long-term care should I expect to need?

A: Just over 20% of people will need care for longer than five years. Deciding early whether to self-fund a liquid reserve or purchase LTC coverage can spare you costly decisions when premiums and underwriting hurdles peak.

Professional Guidance

Q: When should I work with a professional advisor?

A: A professional advisor can help model RMD tax impact, quantify the benefits of delaying Social Security, keep track of taxable account cost basis, and create a year-by-year cash flow map. As Jamie Miller concludes: "A well-designed withdrawal strategy isn't just about minimizing taxes today—it's about preserving your options for tomorrow. The decisions you make in your early retirement years will determine how much flexibility you have if your circumstances change later."

Q: How can MBN & Company help with my retirement spending strategy?

A: The framework outlined here illustrates general tax and cash-flow principles, but optimal sequencing depends on your specific circumstances. If you're interested in creating a personalized financial framework to protect your lifestyle while preserving flexibility in retirement, please contact MBN & Company. With over 50 years of experience, our team can identify tax-saving opportunities and help you develop a comprehensive retirement spending strategy tailored to your unique situation.