Ask an Advisor: How Can I Find a Trustworthy Estate Planner If I'm Wary of Advisors?

Ask an Advisor: How Can I Find a Trustworthy Estate Planner If I'm Wary of Advisors?

Brandon Renfro, CFP®, RICP, EA

7 min read

I’m a single woman with no children, turning 63 years old this year but my family has longevity so I’m using 100 years old as my life expectancy mark for retirement planning.

I have a combined portfolio of $200,000 in a 5% money market, and $1.4 million in stocks in a 401(k) (mostly dividend stocks) and a Roth. I just purchased a $200,000 annuity for security. I still have a $125,000 mortgage and will need a new car soon. My salary is $135,000 per year. I hope to continue working but I’m not taking it for granted and want to be prepared for layoffs that seem to happen often.

I expect my expenses to be around $100,000 a year in retirement.Should I convert some of my savings into a Roth and take the tax hit now? Also, at what age could I retire worry free?

– Jan

I think you’re in good shape. There are some meaningful gaps in the information you provided, but I’ll explain the reasonable assumptions I used to fill them in before I explain where I think you stand. As for converting money to a Roth, yes, I think a Roth conversion strategy could be valuable for you although I don’t think I’d recommend doing it all at once. You may consider spreading the conversion out over a number of years. (If you have similar retirement-planning questions, consider connecting with a financial advisor.)

Filling in the Gaps

I don’t want to get sidetracked from answering your question, so let me just quickly lay out some of the assumptions I had to make. I’m not suggesting these assumptions are “right” or that you should use these as a target. Adjust these as needed as you make your final decision”

Investments: You said you have $1.4 million “stocks,” which I hope also includes some bonds of various types, or that you at least plan to reduce your equity exposure in the near future. I assumed you’d hold a classic 60/40 portfolio in retirement.

Social Security: Only knowing what one year of your salary is, I used the average Social Security benefit of $1,907. You can look at your own Social Security statement or earnings record to get your specific benefit.

Annuity: I assumed you had a deferred income annuity and would start a lifetime payout in five years. A popular online annuity estimator gave me a monthly payment of $1,618 and I assumed no inflation increase.

(Keep in mind that everyone’s outlook for retirement is different. That’s where having a financial advisor walk you through the planning process can help.)

When Can You Retire?

Given these assumptions, a Monte Carlo analysis suggests a reasonable retirement goal would be sometime in your late 60s. However, with more careful and precise planning, you could potentially retire earlier.

For example, with a life expectancy of 100, you anticipate having a longer retirement than what most people will need to plan for. It’s smart to incorporate this longer timeline as you have. But have you thought specifically about how your expenses might change along the way? In most basic retirement planning scenarios we assume that expenses generally increase for inflation. That’s what I did here, but that isn’t always reality.

Medical costs tend to increase at a faster rate, while other expenses like travel, entertainment, food and housing might fall – especially at an advanced age. Suppose you decide to plan for your expenses to increase for a period of time, but then drop in real terms as you physically slow down. You could then tailor your planning to account for that. This could improve your projection quite a bit – and give you the confidence to retire earlier.

One way to achieve this is by creating a substantial “income floor” of guaranteed money. You can do this by delaying Social Security until age 70 to max out your benefits. When paired together, your higher Social Security benefits and annuity payments will provide you with guaranteed lifetime income, reducing the risk of running out of money. If these sources can cover your necessities, you might feel more comfortable retiring earlier, especially if you have adequate health and long-term care insurance.

Again, I’m not saying this is what you should do. I’m simply giving you an example of something you could do. Another powerful tool that can go a long way is a simple willingness to be flexible with your expenses and spend a little less when the market takes a hit.

The key takeaway is that you have various options depending on your planning preferences. (A financial advisor can help you build an income plan in retirement tailored to your needs.)

Roth Conversions

Roth conversions are certainly worth considering and I suspect would improve your retirement outcome. However, I wouldn’t do it all at once. You’re probably in the bottom portion of the 24% marginal tax bracket now. Based on your retirement expenses you’ll likely be in the 25% or 28% bracket if the Tax Cuts and Jobs Act sunsets in 2025 as it is currently scheduled to do.

Doing Roth conversions allows you to pay taxes on that money while you’re in a lower rate. Then, any growth on that converted money can be withdrawn tax-free later. Coupling this with delaying Social Security as mentioned above could be especially tax-efficient. Taxable income such as withdrawals from tax-deferred accounts and your annuity payments can increase the portion of your Social Security benefit that is taxable, so doing conversions before you begin receiving them can lower the tax on your benefits later.

Since you didn’t say how much of your $1.4 million is currently in tax-deferred accounts, it’s hard to know exactly how a lump-sum conversion would impact your tax rate. If you convert the entirety of your tax-deferred assets now, it could be spread across the 24%, 32%, 35%, and 37% marginal tax rates.

Rather than doing that, you may consider spreading it out so that you don’t subject yourself to those higher rates. You could start by looking to fill up the 24% (and then 28% post TCJA) bracket each year. (This kind of tax planning is one area that a financial advisor may be able to help you with.)

Bottom Line

Speaking broadly and relying on some assumptions, I think you’re in a good position even considering your expected longevity. I think you can put yourself in a better position by carefully considering how you want to plan your retirement income, and spreading out your Roth conversions over multiple tax years. You may find that a tailored approach to retirement can provide a more optimal outcome.

Retirement Planning Tips

If you have tax-deferred retirement accounts, you’ll want to plan for required minimum distributions (RMDs). These mandatory withdrawals begin at age 73 (75 for people who turn 74 after Dec. 31, 2032). SmartAsset’s RMD calculator can help you estimate how much your first RMD will be for. Remember, failing to satisfy your RMD can result in a tax penalty.

A financial advisor can help you plan for RMDs, execute Roth conversions and build a holistic plan for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid – in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

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Brandon Renfro is a SmartAsset financial planning columnist and answers reader questions on personal finance topics. He has been compensated for this article and is not a participant in SmartAsset AMP. Got a question you’d like answered? Email [email protected] and your question may be answered in a future column.