Independent
Thinks s/he gets paid by the post
- Joined
- Oct 28, 2006
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This assumption could sabotage your retirement plans. The real longevity risk is not that you both live to 100. The real risk is that one of you (probably the wife) lives to 100 and the other one dies early. Instead of two SS incomes and a low tax rate, suddenly the survivor has one SS income and a high tax rate. Look at the tables for single vs married joint and you will see what happens. Although the cost of living goes down slightly when there is just one, this is probably equalized by the loss of one SS income. There are the same RMDs, so the survivor now is probably taxed on their SS as well as paying at the higher rate.
When running our portfolios through the different planners, this is the case that forces the survivor to pay huge taxes. Maximizing roth conversions to lower the RMDs is definitely important. It is also important to make sure spending assumes this worse case scenario. You don't want to spend too much early on assuming taxes will not eat away at your savings and then the worse happens and the surviror is stuck paying away their savings in taxes.
I can't stress enough how important this assumption is!
My planning assumption is that the cost of running the house stays the same (assuming my wife stays in the house after I'm gone). All other expenses are cut in half.
Sure, she would pay more taxes. But, in our situation, her spending would drop by more than the taxes would go up.