How to Maximize Social Security, Roth Conversions, and Retirement Spending Without Losing Sleep
Planning for retirement isn’t just about having enough—it’s about making smart decisions to keep more of what you’ve saved. This week’s conversation really drove that home as we tackled Social Security timing, tax-smart Roth conversions, and whether expensive annuities and adviser fees are worth it.
1. The Social Security Puzzle
Richie and Heather from Idaho are facing a common but tricky decision—when to claim Social Security. Richie wants to wait until full retirement age in 2029, and Heather is considering claiming at 62 in 2025. But we walked through the math together and saw that delaying until 70 could significantly boost their lifetime income, especially for Heather’s survivor benefits. Her monthly benefit could grow from $1,830 at 62 to $3,358 at 70. And Richie? From $2,747 to $4,789. That’s a serious increase.
We always remind couples to weigh their Social Security timing against other income sources like IRAs and brokerage accounts. If you draw from those first, you might avoid higher taxes and give your Social Security more time to grow.
2. Strategic Roth Conversions
We also looked at how Roth conversions could help Richie and Heather reduce their future tax burden. Since they’re currently in a lower tax bracket, converting portions of their traditional IRA into a Roth IRA now—up to the top of the 12% bracket—makes a lot of sense. That way, they avoid larger required minimum distributions (RMDs) later and keep their brokerage account liquid for near-term spending needs.
3. Coordinating Retirement Spending and Portfolio Allocation
Their $2.625 million portfolio is in a 60/40 equity-to-fixed-income mix, and they plan to spend $120,000 per year (not including taxes). That gives them a lot of flexibility, but we encouraged them to avoid viewing their accounts as separate “buckets.” Instead, it’s better to manage the entire portfolio as one cohesive plan. For example, they’re withdrawing $50,000 soon to upgrade their travel trailer, and we talked about how to time that without triggering a big tax hit or pulling from equities in a down market.
4. A Cautionary Tale About Indexed Annuities
Rebecca and Sam from Virginia called in with a major regret: a $1 million indexed annuity they bought in 2022. Rebecca was frustrated with the confusing terms and underwhelming growth. We showed them that in many cases, these annuities take 20 years just to break even. While they offer “guaranteed income,” the trade-off is poor long-term performance. They’re now considering cashing out at the $954,000 surrender value—yes, that’s a $50,000 loss, but it may be worth the freedom to reinvest elsewhere.
5. Overpaying for Financial Advice
To make matters worse, Rebecca and Sam’s adviser is charging them 2% annually on their $1.2 million portfolio. That’s $24,000 per year—far above the industry standard of 0.60% to 0.70%. And if that adviser also earned a hefty commission on the annuity sale, that’s a red flag. We encouraged them to get a second opinion from a fiduciary who puts their interests first and charges a fair rate.
6. Don’t Bank on Social Security Tax Reform
Gerri from Phoenix asked about Donald Trump’s proposal to eliminate taxes on Social Security. While it sounds good, we don’t expect it to happen. These ideas tend to surface during campaign season but rarely materialize. We told Gerri to stick to his current strategy of waiting until 70 to claim benefits—because solid, long-term planning beats political speculation every time.
7. Claiming Social Security with a Twist: The Lump Sum Option
Pete Ware chimed in with an advanced tactic: waiting until age 70.5 to claim Social Security and then requesting six months of retroactive payments. That lump sum wouldn’t reduce the ongoing benefit amount, and it would create a full year for Roth conversions without Social Security income inflating the tax bill. It’s a smart move for the right person, but like any strategy, it needs to be part of a broader financial plan.
The Takeaway
Every decision in retirement has a ripple effect. Claiming Social Security early might cost you thousands over time. Overpaying for advice could mean retiring later than you’d like. And an annuity that feels “safe” could quietly erode your nest egg. But with careful planning—especially around taxes—you can make the most of your savings and build a secure, tax-efficient retirement.
Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.
IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.
• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
