RPI #011: Retirees Can Earn $47,500 Tax Free This Year

RPI #011: Retirees Can Earn $47,500 Tax Free This Year

Inflation and market chaos look scary - but they're quietly handing retirees a $47,500 tax-free bonus this year.

Episode Summary

In this episode of Retire Plugged In, host Nora Hartquist breaks down why today's "scary" economic cycle - inflation, high rates, market swings - is actually loaded with hidden advantages for retirees.

You'll learn how Multi-Year Guaranteed Annuities beat inflation tax-deferred, how qualifying couples can pocket $47,500 in tax-free income this year, and why RMDs and Sequence of Returns risk demand a new investing playbook.

Question of the Day 🗣️

Have you looked at how today's economic conditions might actually benefit your retirement - or have you been focused on the scary headlines? What surprised you most in this episode?

Key Take-aways

• MYGA rates of 5-6.4% beat inflation - locked in and tax-deferred
• New deductions let qualifying couples earn $47,500 in tax-free retirement income
• RMDs force withdrawals whether you want them or not - the "deal with the devil"
• Sequence of Returns risk means your investing philosophy must change in retirement
• Partial advice from accountants, friends, or ChatGPT can trigger higher Medicare premiums and taxes

Timestamped Outline ⏱️

00:00 – Opening – Issue #011 and the 3 Forces framework
02:21 – Why this "scary" economy actually favors retirees
03:12 – MYGA rates beating inflation, tax-deferred
04:47 – The accountant's advice that nearly backfired
07:36 – Social Security COLA and the $47,500 tax-free opportunity
10:02 – The California move disaster
12:09 – RMDs, Sequence of Returns risk, and Roth conversions
15:00 – The HELOC strategy vs. large IRA withdrawals
18:21 – Closing – what's coming next week

Links & Resources 🔗

• Retire With Purpose, Passion, and Possibilities Bundle (free gift) → https://retirepluggedin.thecenterforretirementreadiness.com/

Connect & CTA 🎯

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Credits

Host: Nora Hartquist © 2026 Retire Plugged In. All rights reserved.

Transcript

SPEAKER_00 0:00

Retire Plugged in Newsletter, issue number 11. Economic cycles, your retirement risk or hidden advantage. The real truth about retirement. What is your retirement window? It's the point in time when you retire despite the economic, political, or social issues happening. You can't change those. In newsletter issue one, we outlined the three forces affecting your retirement window. Now at this point in time, they're quite different than when your grandfather retired. If you missed issue number one, go back and read it to get a better perspective on why retirement planning isn't just about the money in your retirement account. Why? You control your nest egg, but you have no control over this confluence of events in our world today. No control over the economic cycle you happen to retire in, the social dynamic that has drastically changed since your grandfather retired, the tech revolution that has changed not only how we operate, but also how we can be scammed, misinformed, and taken advantage of. The most common questions we get asked are: how do I keep this confluence of events, the economic cycle, the social dynamic, and the tech revolution from ruining my retirement? The second question, I have no idea what I would want for a second act. How do I figure out what would make it great? If those are your questions, you're in the right place. If you didn't catch previous issues, issues three and seven contain valuable insights on tackling the second force, the social dynamic. Of course, we all know that the third force, the tech revolution, has created an entire business on scamming retirees. You are the target, because you've worked hard for decades and have saved the most assets. Issues, five, and six covered the newest and most common scams. Believe it or not, some were interesting. But I could add another one as a warning in every newsletter. Should I do that? Reply scam? I'll start adding that in. Today we're going to guide you through how to take advantage of the first force, the economic cycle, instead of letting it adversely affect your retirement. Then in the next newsletter, what would make your retirement legendary? The economic forces don't have to wreck your retirement. You can create your second act with the current forces rather than fighting them. The economic forces today are scary. Inflation is rampant, mortgage rates are high, the stock market is at an all-time high. Could we have another 2000 or 2008? And layoffs are widespread due to AI and a tight job market. In addition, you may be supporting parents who are declining and/or young adults struggling to launch. According to the United States Congress Joint Economic Committee, the inflation has been 3.8% just over the last year. If you want to download the entire report, we have a link below. Is this all bad? It seems so unless you look at the interest rates and see that 3.81% inflation increases seem drastic until you look at the current multi-year guaranteed annuity rates offered by various companies, as quoted from Annuity Rate Watch. Amazing the high rates that they're offering. As you can see in this diagram, amazing high rates guaranteed for many years. Are these rates really available and guaranteed for all those years? Yes, because when those mortgage rates are high, credit card rates are high, your annuity offerings will also be high. When you obtain a multi-year guaranteed annuity, they can't change the rate on you. When your CD rolls over in six months, a year, or probably at most two years, you get the current rates, which may well be lower. Plus, due to the Internal Revenue Code IRC section 72, all annuity growth is tax deferred until removed, even though it's not an IRA. You get to choose when to pay the taxes by choosing when to take the interest. Just today we had a client call to ask if her accountant was right that she should put all her savings into federal municipal bonds to avoid taxes on her interest. It's important to note that an accountant does not serve as an advisory capacity and should refrain from providing investment advice. First, he probably doesn't know that municipal bond interest may not be federally taxable, but it does count against provisional income calculations that determine her Social Security taxation. It also counts against her for Medicare premiums, possibly pushing her at least $1 over the cutoff, causing her to pay $50 to $100 more every month for her Medicare. Let me reiterate what we regularly explain to clients. What you don't know can hurt you. Many times what you think you know, what you read or a friend told you is correct up to a point, but the ramifications aren't known to you. We always tell clients, call us before you do something you read on Chat GBT, your friend or even an accountant told you. We can easily prevent a mistake, but unwinding one is more difficult and sometimes impossible. This is the very reason we're creating the membership retire plugged in so you can get the complete information, not partial ideas that could result in an irreversible disaster. If you'd like to be notified when the membership opens, just reply with the word list. Even a fixed annuity which has no market risk and defes may be a disastrous mistake for you. The entire situation must be taken into account to see if it fits into your financial plan before you choose to use any financial tool. In fact, it's been said that the central bank's rate cuts have driven retirees toward more durable investments such as fixed annuities. Whether you should incorporate one needs careful analysis by an independent fiduciary who has no allegiance to any large company that produces its own investments or products. Of course, retire plugged in will refer you to an independent fiduciary if you need one. Contrary to what many investment-only advisors will tell you, a true fiduciary will be agnostic to the tool, as our firm says. Meaning, when an investment or annuity fits into a retirement plan and has the right terms, it's a wonderful tool. We'll go into the pros and cons of annuities in a future newsletter. Obviously, this is one advantage of the current economic cycle. Other advantages of this economic cycle for retirees include much higher Social Security increases annually, 2.8% this last year, which continues throughout your retirement. By the way, did you know that even if you're not collecting, you're getting the cola too? Kiplinger recently said this year's Social Security cola could be as high as 3.9%. Did you get an automatic raise from your employer when you were working? Here are the raises Social Security is given since 1975. You'll see it's been as high as 8%, 5%. It goes up and down, but just about always a raise. Many retirees found out when they got a nice refund of their 2025 taxes that there are also new favorable tax adjustments, too. The standard deduction for a married couple filing joint of any age is up to $31,500. What does that mean? No need to justify expenses, donations, or anything. You just get the first $31,500 of income tax-free. What if you're retired? Retired is not a requirement for additional tax breaks. However, if you're 65 or over, you automatically get additional deductions. No itemization or justification required. If you're married and both 65 or over, your automatic deduction on a joint return is $34,700, but it gets better yet. With a new OBBBA Act passed last year, you have three years to take advantage of yet another deduction if you qualify. An additional $6,000 per person every year or $12,000 a couple. We have a two-minute video to see if you qualify. A qualifying couple could have a whopping $47,500 of income tax-free. Then think about this. Your first tax bracket above that is only 10%. This lowers all your tax brackets. Yes, this economic cycle during your retirement window can adversely affect your retirement, especially if you're not aware of what to avoid and what to take advantage of. For instance, now is not the time to purchase real estate with the high real estate values and mortgage rates. But what if you plan to move in retirement? Be strategic. Perhaps you rent for here in the place where you wish to move and keep your current home, and you just might decide to move back. One of our clients was so excited to move closer to her daughter in California. She sold her home here and purchased a home in California. Luckily, it wasn't a very large mortgage because she used all the equity out of her home here as a down payment. However, her daughter still turned out to be too busy to spend time with her mother, so mom decided she'd move back here to be near her son. Meanwhile, values in California dropped due to fires, floods, economic conditions. Then, when she sold, she didn't get all her equity back. What she found was that while California values dropped, the prices here, as well as the interest rates, had risen so much that she couldn't afford to buy a home again. This turned out to be a disastrous mistake for her. What other part of the economic cycle do you have to be aware of? The stock market is at an all-time high. Could another 1987, 2000, or 2008 wreck your retirement? You might say, Well, I'm a long-term investor. I'm not worried. Or maybe you are worried. Either way, should your investing philosophy change during retirement? And if so, why? There's a great difference between investing for accumulation, that is growth before retirement, and decumulation, withdrawals during retirement. Maybe you have enough income from Social Security, pensions, or real estate that you don't need to tap your retirement account. So you're not worried about the dips in the market. You'll just wait for it to come back. Wrong answer. You will take withdrawals from your retirement account, whether you want to or not. You made a deal with the devil, and the devil wants his due. You got a tax break and a tax deferral for putting money away in your 401k, 403B, IRA, or other retirement account. That was the deal. But the other half is that you'll pay taxes later not only on what you scrolled away, but on all the growth too. Unless your accounts are all Roth, highly unlikely, since Roth hasn't been available your entire career, the devil will get his due. To make you pay the taxes, you'll have mandatory withdrawals called RMDs, starting at age 73 or 75, depending on your birth year. These withdrawals, percentages, grow every year. Here's just a sampling of the percentages. At 73, 3.8%. At 85%, 85, 6.3%, going up to 9.2 at 90%, and good lord, don't live to 110, it's 50%. If you'd like to download your own copy of all the RMD factors for not only your RMDs, but also for inherited RMDs and couples who have a spouse 10 years younger, we have a link for you to download that. Why is that important? Have you ever heard of sequence of returns risk? It's real and a definite problem when you're withdrawing during retirement. Here's a two-minute video you can tap explaining how sequence of returns can wreck your retirement. The current economic cycle in your retirement window makes it highly likely that there will be a significant market crash at some time during your retirement. How do you avoid the adverse effects? First, strategic planning. Did you know that there are no age or income requirements to take advantage of Roth conversions? With the current favorable tax deductions in this economic cycle, it may be time to plan some partial Roth conversions. Roth accounts do not have to take required minimum distributions. Beware though, because these conversions are irreversible. Did you think about how that will affect your taxes, your Medicare premiums? Again, there's much more to know, and each situation is different. All of this has to be individualized for your particular situation. Beware of those who call themselves retirement advisors just because they manage money. A true retirement advisor considers the ramifications to your income needs now and in the future: taxation, Social Security, Medicare, liquidity, accessibility, spousal survivorship, and much more. We'll address how to vet an advisor to find the right one for you in a future newsletter. More strategic planning for both taxes and this economic cycle. Remember we talked about those dips? What if you need money for a new roof or other large emergency, or a trip you happen to plan? Could a large sum withdrawal from your IRA wreck your account because the market is down? Cause a massive increase in your tax bill this year, or put you into IRMA, increased Medicare premiums, even eliminate an additional tax deduction you might qualify for? There's an alternative to that withdrawal that could have all those effects, but you must prepare now before you need it. Are you familiar with a HELOC? That stands for Home Equity Line of Credit. No, I'm not telling you to take out more mortgage or a new mortgage against your home that you work so hard to pay off. A HELOC is simply a large line of credit, like a huge credit card backed by your home's equity. You owe nothing on your home unless you use it. The difference between that and a mortgage is quite traumatic. A standard mortgage is an amortized loan, meaning you have a fixed interest and equity payment schedule that never changes. Adding extra to your standard mortgage payment each month does not change your payment schedule or how interest is calculated. A HELOC is quite different. It generally only requires an interest payment each month, but you can add more to pay down the balance. You decide your schedule of payments. Every payment above the interest due reduces the principal. So next month's interest calculated only on the remaining balance. Let me give you an example. You use $15,000 from your HELOC for the new roof. You have an extra $2,000 a month income that you can put on that HELOC every month. So let's say the HELOC interest rate is 6%, a lot lower than a credit card and cheaper than the probable 20% taxes you'd have paid on withdrawing from your IRA. In the first month, your interest-only requirement at 6% is $75, but you use the $2,000 as a payment. So the extra amount will pay down the balance. $75 went to interest, $1,925 went to principal. Your payment for next month is calculated at 6% of $13,075 principal for an interest payment of only $65.38, leaving $1,934 applied to the principal. Your principal balance is down to $11,140. I think you can see this will be paid off very quickly at a low interest rate, and you've avoided high taxes, high credit card rates, and possibly wrecking your retirement account if the market is down. Of course, if you have an IRA investment, you can withdraw the funds at any time to pay off that HELOC. We advise our clients to make strategic withdrawals, to spread the taxes over two years, or to take advantage of a market spike. Put this tool in your toolbox. These ideas will help you use this economic cycle to your advantage instead of letting it ruin your retirement. And next week, the answer to I have no idea what I would want for a second act. How do I figure out what would make it great? Thank you.