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Besides rethinking their
guaranteed income. For the medium-flexible spend-
ing that can be postponed or managed during times
of volatility, allocate some stock. And to fund the
leisure spending, allocate higher-growth/higher-risk ideas about spending,
investments.
This way, when markets perform well, clients can
more freely partake in flexible and leisure spending, another critical mental shift
but during downturns or times of uncertainty, they
can minimize withdrawals from that asset bucket for retirees involves taxes.
and avoid liquidating at inopportune times.
Note that Social Security, pension, or guaranteed
annuity income would be considered part of the The change to their taxation
bond or fixed-income allocation, which could make
the case for delaying Social Security at least to full
in retirement often catches
retirement age.
SHIFTING THE TAX PLANNING APPROACH
Besides rethinking their ideas about spending, newer retirees by surprise.
another critical mental shift for retirees involves
taxes. The change to their taxation in retirement
often catches newer retirees by surprise. Not only
are different retirement income sources taxed
differently, but tax withholding rates also vary
depending on the asset. This doesn’t necessarily options to supplement inflexible spending needs in
require CPAs to make their clients experts on the future years. (For more on this topic, including a
various ways that retirement income sources are numerical illustration, see “Building a Tax-Efficient
taxed, but it will likely necessitate a conversation Retirement Income Plan for Clients,” JofA, May 12,
around withholding choices as well as possibly 2022.)
implementing estimated tax payments to avoid
underpayment penalties. SHIFTING POWERS OF ATTORNEY
Most retirement account administrators default The third critical shift in thinking for retirees in-
to the standard 20% withholding rate, while Social volves estate planning, especially beliefs about who
Security doesn’t require any withholding, which is a should be given powers of attorney. Many clients
departure from the way payroll tax withholdings are will head into retirement with outdated estate plans
calculated. It’s not uncommon for newer retirees to that were put in place when their children were
have an unexpected balance due on their taxes their minors, so they already may be aware of the need to
first post-retirement tax season after decades of address this area. To be of value, help them to think
refunds or a minimal balance due. Couple this with beyond just updating (or creating) a will or trust by
the varying ways that states tax retirement income, raising the question of whether currently named
and clients may need a tax projection to aid in cash parties are still the appropriate choice for all estate
flow planning each year. planning documents.
For clients with larger balances in tax-deferred For example, it’s common to give one’s spouse
retirement vehicles such as traditional IRAs, a the durable and medical powers of attorney during
shift in thinking around intentionally incurring working years, but as both spouses age, it’s best to
taxation may also be necessary. Depending on their reassign those responsibilities to a nearby family
other sources of income, it may be a good idea to member or trusted friend who is younger than 50.
make taxable withdrawals that go beyond current The reason to give someone a power of attorney
spending needs to “fill up” lower tax brackets, which goes beyond planning for incapacity to simply
will reduce future required minimum distributions planning for practicality. A common task filled by
that could be taxed at a higher rate in the clients’ the person with the power of attorney is bill-paying,
70s. This strategy doesn’t require those funds to be which some clients will need someone else to
spent — they can be converted to a Roth IRA or handle due to physical challenges such as arthritis
shifted to taxable municipal bonds or other stable and not necessarily due to a lack of mental faculties.

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