Berks Barrister Fall 2018 - 12

w w w.BERKSBAR.org

Out-of-the-Box Thinking for Social Security
Continued from page 11

SANDMAN LAW OFFICE, PLLC
Intellectual Property & Business Law

CENTRAL FLORIDA
AND PENNSYLVANIA
IP, PATENT, AND
BUSINESS LAW
Lori Sandman, Esq.

TA K ING T H E GU E S S W ORK O U T OF

Intellectual Property Law
Trademarks and Patents
Business Law

(386) 206-2898 * w w w.SandmanIP.com

The income stream you will need will also have to increase in
the future. Remember what an ice cream cone or jar of peanut
butter cost 25 years ago and what it costs today. It is highly likely
everything will cost more in the future. You face a multitude
of risks with decumulation strategies from investor behavior to
overspending. Understanding your needs and goals will help
identify some of these risks. Comprehending the basic issues
should help you decide what's best for you and your family.

When Should I Draw My IRA?

The answer is... It depends. What few understand is that
IRAs were designed to replicate defined benefit pension plans.
Looking at the IRS' IRA Required Minimum Distribution
(RMD) Worksheet and Uniform Lifetime table in Publication
590, the IRS seems to have very logically set up the Required
Minimum Distribution schedule beginning the year you turn 70
½. Essentially, the tables require you to withdraw an increasing
percentage of your IRA over your lifetime.
The required withdrawal percentage for a 70-year-old is
1/27.4 = 3.65%. At age 80, the percentage is 1/18.7 = 5.35% and
at 90 is 1/11.4 = 8.8%. This means a retiree would take larger
amounts of money each year from their IRA. Almost certainly,
your cost of living would increase requiring additional income
later in life.
Most retirees, attorneys or otherwise, view their IRAs and
retirement plans as assets. Instead, they prefer their retirement
accounts to grow so they can pass it on to their children. IRAs
may not the best tools for wealth transfer.

So, What Should I Do?
(collectively, "IRA") distribution planning. First, you will learn
about the term decumulation and what it means, followed by
different theories affecting how you conduct your planning.

What is Decumulation?

Most people are familiar with accumulation. It involves saving
and accumulating wealth outside your business. Most do so
through their company 401(k) or other retirement plans, along
with their personal savings. It's what most people call their "nest
egg."
Decumulation, on the other hand, is something few people
think about. Retirement signals the end of your bi-weekly
paycheck and saving money. As a retiree, you go from putting
money away to spending part of your savings - 180° opposite
of what you've done all your adult life. At some point, you will
need to begin taking withdrawals from your retirement plan and
savings.
Next, consider that retirements last decades, not years.
Americans are routinely retiring at 65 and living until 95. You will
face various economic scenarios, forcing retirees to maintain their
investment discipline through periods of inflation and fluctuating
investment markets.

12 | Berks Barrister

The timing of your IRA withdrawals should be carefully
planned for, hoping to benefit you and your family long-term.
There are a number of issues you need to consider. Knowing
the IRS requires you to begin taking money out at 70 ½, some
planning will have to take place before that age.
A common planning technique is to "begin your RMDs
early." Essentially that means making IRA withdrawals prior
to 70 ½. For most attorneys, they will earn more while working
than in retirement. Hence, this planning typically takes place
between your retirement date and 70 ½. This may be even more
helpful if you are married.
If you do not have a pension and you defer SS, you may not
have very much taxable income prior to age 70. Depending on
your other income sources, it may make sense to begin taking
IRA withdrawals, hoping to fully use your lower income tax
brackets. This allows you to pay more of your taxable income at a
lower rate. For many, once they begin RMDs, and they are taking
SS, their income increases potentially subjecting themselves to
higher tax rates and possibly even the Medicare Part B surcharge.
Another consideration is for wealthy couples. When one
spouse dies, you go from "Married Filing Jointly" to an individual
return. The more investment and RMD income you have, the
less your taxable income will be. Again, planning is valuable.
http://www.berksbar.org http://www.SandmanIP.com
Berks Barrister Fall 2018

Table of Contents for the Digital Edition of Berks Barrister Fall 2018
