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14. COMMON CLIENT QUESTIONS

“When can I afford to retire?”

This is the most common question SRB Advisors helps clients answer. The answer depends on:

Income Sources

• Pension amount (calculated based on years of service and final average salary)
• Social Security benefit (based on earnings history and claiming age)
• Retirement account balances (403(b), 457, IRAs, etc.)
• Any other income (rental property, part-time work, etc.)

Expenses

• Current lifestyle spending
• Expected changes in retirement (lower commuting costs, potentially higher travel or healthcare)
• Healthcare costs before Medicare
• Long-term care planning
• Legacy goals

The Process Advisors use financial planning software to:

1. Project income from all sources at different retirement ages
2. Compare projected income to spending needs
3. Run Monte Carlo analysis to test probability of success
4. Model different scenarios (retiring now vs. in 1-2 years, different spending levels, etc.)
5. Identify the optimal retirement timing based on financial and personal factors

Key Factors

• Pension calculation (some tiers provide incentives for reaching certain anniversaries)
• Healthcare coverage (retiring before 65 requires bridge coverage)
• Social Security claiming strategy (claiming early reduces benefits)
• Market conditions and sequence of returns risk
• Personal readiness and life goals

Most clients discover they can retire sooner than expected, or that working one more year creates significantly more security. The analysis removes guesswork and provides confidence.

“Should I take the TIAA lump sum or annuity?”

For MSU employees with TIAA Traditional funds, this is a critical decision. TIAA offers:

Annuity Option (Transfer Payout Annuity)

• Guaranteed lifetime income
• Monthly payments that continue for life
• Payments adjusted annually based on TIAA’s investment performance
• Cannot be outlived
• Limited liquidity (some withdrawal options but not full access)
• Survivor benefit options (reducing payment to continue for spouse)

Lump Sum Option

• One-time distribution or series of withdrawals
• Full control and liquidity
• Can be rolled to IRA for more investment options
• Subject to investment risk and longevity risk
• Flexibility to leave to heirs
• No guaranteed income floor

The Analysis SRB Advisors helps clients evaluate by considering:

• Need for guaranteed income vs. desire for flexibility
• Other sources of guaranteed income (pension, Social Security)
• Health and longevity expectations
• Legacy goals and heirs
• Tax implications of different options
• Spouse’s situation and survivor needs
• Comparison of TIAA’s payout rates to market alternatives

Common Recommendations

• Clients with strong guaranteed income from pension and Social Security may prefer lump sum for flexibility
• Clients concerned about longevity or wanting maximum guaranteed income may prefer annuity
• Hybrid approaches (annuitize portion, take lump sum on remainder) often make sense
• Analysis is highly individual and depends on complete financial picture

“How should I coordinate my 403(b), 457, and pension?”

University employees often have multiple retirement accounts that need coordination:

Key Differences

• 403(b): Tax-deferred contributions, subject to RMDs at 73, 10% penalty if withdrawn before 59½ (with exceptions)
• 457: Tax-deferred contributions, subject to RMDs at 73, NO early withdrawal penalty (unique advantage)
• Pension: Defined benefit, usually monthly payments starting at retirement age, may have lump sum option

Strategic Coordination SRB Advisors helps clients create withdrawal strategies that:

Pre-Medicare (Retiring Before 65)

• Use 457 to cover expenses (penalty-free access)
• Preserve 403(b) for later (continue tax-deferred growth)
• Delay Social Security if possible (increases benefit 8% per year until 70)
• Manage income to qualify for ACA subsidies if purchasing healthcare on exchange

Age 65-73 (Medicare but Before RMDs)

• Coordinate pension + Social Security to cover baseline expenses
• Use 403(b) and 457 strategically to fill gaps
• Consider Roth conversions to reduce future RMDs
• Manage income to control Medicare IRMAA surcharges

Age 73+ (RMD Years)

• RMDs from 403(b) and 457 must begin
• Coordinate withdrawals to minimize tax bracket creep
• Use Qualified Charitable Distributions to satisfy RMDs tax-free
• Consider adjusting spending or using taxable accounts to avoid high tax brackets

Tax Optimization The goal is to:

• Smooth tax liability over retirement years
• Avoid years with unnecessarily high taxes
• Fill lower tax brackets efficiently
• Plan for legacy and beneficiary tax consequences

“What happens to my healthcare when I retire?”

Healthcare is one of the biggest concerns for those retiring before Medicare eligibility at age 65.

For MSU Employees Michigan State University offers retiree healthcare options, but coverage and costs differ from active employee plans:

• Eligibility requirements (typically based on years of service and age)
• Premium costs for retirees (usually higher than active employee premiums)
• Coverage differences between retiree plans and active plans
• Spouse coverage options and costs
• When coverage transitions to Medicare at age 65

For State of Michigan Employees State employees have retiree healthcare options that vary by:

• Pension tier and hire date
• Years of service at retirement
• Whether retiring before or after age 65
• Premium costs and employer contributions

Bridge Coverage Strategies For those retiring before 65 without employer retiree coverage:

• COBRA continuation (expensive but maintains current coverage for 18 months)
• Healthcare marketplace/ACA plans (subsidies available based on income)
• Spouse’s employer plan if available
• Private health insurance
• Part-time work for health benefits

Medicare Planning At age 65, transition to Medicare:

• Medicare Part A (hospital) and Part B (medical) enrollment
• Medigap supplemental insurance or Medicare Advantage
• Part D prescription drug coverage
• Coordination with employer retiree coverage if applicable

SRB Advisors helps clients:

• Understand their specific retiree healthcare options
• Calculate healthcare costs in retirement planning
• Choose appropriate coverage based on health needs and budget
• Navigate Medicare enrollment and plan selection
• Optimize timing of retirement based on healthcare coverage

“When should I claim Social Security?”

Social Security claiming is one of the most important and irreversible retirement decisions.

Claiming Age Options

• Age 62: Earliest possible (approximately 30% reduction from full retirement age benefit)
• Full Retirement Age (66-67 depending on birth year): 100% of earned benefit
• Age 70: Maximum benefit (approximately 24-32% increase from full retirement age)

Factors SRB Advisors Considers

• Life expectancy and health status
• Need for current income vs. ability to delay
• Spousal benefits and survivor planning
• Other income sources (pension, retirement accounts)
• Tax implications of different claiming ages
• Break-even analysis
• Longevity insurance value of delaying

Common Strategies

• Delaying to age 70 if possible maximizes lifetime benefits for those with average or longer life expectancy
• Coordinating spousal claims (higher earner delays, lower earner claims earlier)
• Considering survivor benefits (higher earner’s age 70 benefit becomes survivor benefit)
• Balancing Social Security delay with tax-efficient withdrawal of retirement accounts

Special Considerations

• Windfall Elimination Provision (WEP) for those with pensions from non-Social Security-covered employment
• Government Pension Offset (GPO) affecting spousal and survivor benefits
• Earnings test if claiming before full retirement age while still working

The analysis is highly individual and considers the complete financial picture, not just Social Security in isolation.

“How do I minimize taxes in retirement?”

Tax planning is critical for retirees with multiple income sources.

Tax-Efficient Withdrawal Sequencing SRB Advisors typically recommends a strategic order for withdrawals:

1. Taxable accounts first (usually lowest tax impact due to capital gains rates)
2. Tax-deferred accounts (401(k), 403(b), 457, traditional IRA) next
3. Tax-free accounts (Roth IRA, Roth 401(k)) last

However, this isn’t always optimal. Adjustments consider:

• Current tax bracket and projected future brackets
• RMD timing and amounts
• Social Security taxation
• Medicare IRMAA thresholds
• State income tax considerations

Roth Conversion Strategies Converting traditional IRA or 401(k) assets to Roth can make sense when:

• In lower tax bracket years (early retirement before RMDs and Social Security)
• Expecting higher future tax rates
• Wanting to reduce future RMDs
• Planning to leave tax-free inheritance to heirs

Conversions are taxable in the year completed, so timing and amount matter significantly.

Managing RMDs After age 73, Required Minimum Distributions begin from tax-deferred accounts. Strategies include:

• Qualified Charitable Distributions (QCDs) to satisfy RMDs tax-free
• Planning withdrawal amounts to stay below IRMAA thresholds
• Coordinating with Social Security and pension to manage total taxable income
• Using taxable accounts to fund spending if RMDs create excess income

Medicare IRMAA Planning Income-Related Monthly Adjustment Amounts increase Medicare Part B and D premiums for higher-income retirees. SRB Advisors helps clients:

• Understand IRMAA thresholds
• Manage income to avoid crossing thresholds
• Plan for 2-year lookback (income from 2 years prior determines current IRMAA)
• Appeal IRMAA determinations if life-changing events occurred

Tax Diversification Having money in different tax buckets (taxable, tax-deferred, tax-free) provides flexibility to optimize withdrawals based on annual tax situations.

“Do I need long-term care insurance?”

Long-term care is one of the biggest financial risks in retirement, and insurance can protect against catastrophic costs.

The Risk

• 70% of people over age 65 will need some form of long-term care
• Average cost of nursing home care exceeds $100,000 per year
• In-home care and assisted living are also expensive
• Medicare does NOT cover long-term custodial care
• Medicaid only covers care after spending down assets

When Insurance Makes Sense SRB Advisors typically recommends long-term care insurance for clients who:

• Have assets worth protecting (generally $200,000+)
• Can afford premiums without straining budget
• Want to preserve assets for spouse or heirs
• Don’t have sufficient assets to self-insure
• Are in good health (required for approval)
• Are age 55-65 (premiums increase significantly with age)

When to Self-Insure Insurance may not be necessary if:

• Assets are limited (Medicaid will cover care)
• Assets are substantial enough to cover care costs (several million dollars)
• Health conditions make insurance too expensive or unavailable
• Prefer to spend down assets rather than pay premiums

Alternative Strategies

• Hybrid life insurance/long-term care policies
• Annuities with long-term care riders
• Setting aside assets specifically for potential care needs
• Purchasing insurance for one spouse (typically higher earner) to protect survivor

Policy Features to Consider

• Benefit amount (daily or monthly)
• Benefit period (years of coverage)
• Elimination period (waiting period before benefits begin)
• Inflation protection (essential given rising care costs)
• Home care vs. facility care coverage
• Shared benefits for couples

SRB Advisors helps clients evaluate whether long-term care insurance fits their situation and, if so, structure appropriate coverage.

“What about estate planning?”

Estate planning ensures assets transfer according to wishes and minimizes complications for heirs.

Essential Estate Documents SRB Advisors recommends all clients have:

• Will or Trust
• Durable Power of Attorney for finances
• Healthcare Power of Attorney
• Living Will or Advance Healthcare Directive

Beneficiary Designations Often more important than wills:

• Retirement accounts (401(k), 403(b), 457, IRA)
• Life insurance policies
• TOD (Transfer on Death) accounts
• POD (Payable on Death) accounts

SRB Advisors reviews beneficiary designations to ensure:

• Designations match current wishes
• Contingent beneficiaries are named
• Considerations for tax implications to heirs
• Coordination with estate plan documents
• Special needs trusts for disabled beneficiaries if applicable

Trust Considerations Trusts may be appropriate for:

• Avoiding probate
• Privacy (wills become public, trusts don’t)
• Control over distribution timing
• Protection for minor children
• Special needs beneficiaries
• Blended families
• Large estates

Tax Planning for Heirs SRB Advisors considers:

• Step-up in basis for taxable accounts
• Inherited IRA distribution rules (10-year rule for most beneficiaries)
• Roth vs. traditional account inheritance
• Life insurance as tax-free inheritance
• Charitable giving strategies

Coordination with Attorneys SRB Advisors works alongside estate planning attorneys:

• Advisors identify estate planning needs
• Refer clients to qualified estate attorneys
• Review documents to ensure alignment with financial plan
• Update financial plans based on estate documents

Estate planning isn’t just for the wealthy. Everyone needs basic documents to protect themselves and their families.