Category: Retirement & Wealth Planning
Case Study Type: Pre-Retirement Planning
This financial case study explores how I helped a couple navigate retirement planning, optimize taxes, and use indexed annuities to secure their future.
Client Profile
- Names: John & Susan (fictional names)
- Ages: 60 & 58
- Occupations: John – Engineer (Still working); Susan – Former Teacher (Retired)
- Current Income: John – $120,000/year; Susan – No active income
- Assets:
- 401(k): $850,000
- Roth IRA: $150,000
- Traditional IRA: $200,000
- Taxable Investment Account: $100,000
- Savings: $50,000
- Home Value: $400,000 (Paid Off)
- Liabilities: None
- Monthly Expenses: $6,500
- Projected Social Security Benefits:
- John: $3,000/month (at 67)
- Susan: $1,500/month (at 67)
Understanding This Financial Case Study
John and Susan had been diligent savers, accumulating over $1.3 million in retirement accounts and owning their home outright. However, they weren’t sure if their savings were enough to retire comfortably or how to create a sustainable income strategy while minimizing taxes and IRMAA (Medicare) surcharges.
John still enjoyed working but wanted to retire in five years if it was financially feasible. Susan, already retired, wanted to ensure John wasn’t working longer than necessary. Their primary concerns were:
✅ Outliving their savings (since both had parents who lived into their 90s)
✅ Minimizing taxes on withdrawals to avoid unnecessary IRMAA penalties
✅ Reducing market volatility exposure as they approached retirement
✅ Bridging the healthcare gap until Medicare eligibility
Building Their Retirement Plan
1. Retirement Timing & Income Strategy
After running a detailed projection, I confirmed that John could retire in five years if we structured their income correctly. At that point, their income sources would include:
🔹 Social Security
🔹 Withdrawals from investments
🔹 A tax-efficient strategy to keep them under key tax thresholds
2. Social Security Strategy
John’s full retirement age (FRA) Social Security benefit would be $3,000/month, but delaying until age 70 would increase it to ~$3,720/month. Susan could claim a spousal benefit at 67.
👉 What I recommended:
✔ John should delay Social Security until 70 for the highest guaranteed income.
✔ Susan should claim her benefit at 67 to optimize lifetime benefits.
✔ We would use withdrawals from their investments to cover expenses before John claims benefits, reducing long-term tax burdens.
Why? This approach helps preserve their assets longer while securing the highest possible guaranteed income.
3. Managing Taxes: Roth Conversions & IRMAA Planning
One major issue was their large pre-tax retirement accounts ($1.2M total). If left unchecked, RMDs (Required Minimum Distributions) would force them into a higher tax bracket in their 70s, possibly pushing them into IRMAA surcharge territory for Medicare premiums.
👉 What I recommended:
✔ Annual Roth conversions of $50,000–$75,000 during early retirement, keeping them in a lower tax bracket.
✔ Converting before Social Security kicks in, when their taxable income is lower.
✔ This strategy would reduce RMDs, lower their lifetime tax liability, and prevent IRMAA penalties.
💡 Bonus: Their Roth IRA would now grow tax-free, providing a tax-efficient income stream for later retirement.
4. Investment & Risk Management: Protecting Their Portfolio
Their investment allocation was too aggressive (70/30 stocks/bonds) for a couple nearing retirement. A downturn could significantly impact their nest egg if they needed to withdraw funds during a market dip.
👉 What I recommended:
✔ Reallocating a portion of their assets into an indexed annuity for principal protection and guaranteed growth.
✔ Reducing equity exposure slightly but keeping a growth bucket for long-term wealth preservation.
✔ Implementing a “Bucket Strategy”:
- Short-Term (0-5 years): Cash & low-risk assets to cover early retirement withdrawals.
- Mid-Term (5-10 years): A mix of conservative investments & moderate growth.
- Long-Term (10+ years): Stocks & Roth IRA for tax-free, inflation-beating growth.
Why Indexed Annuities Instead of Bonds?
In past market conditions, I may have used bonds, but with higher interest rates today, an indexed annuity provides better downside protection while still allowing for growth potential.
5. Bridging the Healthcare Gap Before Medicare
Since John planned to work until 65, he could stay on his employer’s health plan, but Susan needed coverage until Medicare eligibility.
👉 What I recommended:
✔ A private ACA plan with premium tax credits.
✔ Utilizing HSA contributions to cover tax-free medical expenses in the future.
💡 This plan ensured they had affordable coverage while keeping healthcare costs low.
Final Plan & Outcome from This Financial Case Study
After implementing these strategies, John and Susan:
✅ Had a clear retirement timeline and felt confident in their plan.
✅ Reduced their future tax burden through strategic Roth conversions.
✅ Avoided IRMAA surcharges by controlling RMDs and taxable withdrawals.
✅ Protected a portion of their portfolio with indexed annuities.
✅ Had a plan for Susan’s healthcare until Medicare eligibility.
✅ Created an estate & legacy strategy for tax-efficient wealth transfer.
🔹 Key Takeaways from This Financial Case Study
- Start Roth conversions early to reduce RMDs and avoid IRMAA penalties.
- Delaying Social Security maximizes guaranteed income.
- Indexed annuities can replace bonds in today’s market for safer growth.
- A tax-efficient withdrawal strategy extends retirement savings.
- Plan for healthcare before Medicare kicks in.
💡 Are You on Track for Retirement?
If you’re unsure whether your savings will last, let’s build a customized plan that maximizes your income, minimizes taxes, and protects your wealth.
📞 Schedule a Free Consultation Today!
Thomas Clark is a Series 65 licensed investment advisor and experienced trader. He specializes in investing, retirement planning, and market analysis, helping individuals build wealth and make informed financial decisions.