A financial advisor in Sarasota should start with two questions: what your income already covers, and what the rest of your money is for. Holland Capital plans withdrawals, taxes, and investments together, so each decision is made with the others in view.
The pension deposit arrives on the first of the month. Social Security follows a few days later. Between the two, most of the regular bills are paid before you think about them.
Then there is everything else. An IRA that has been growing for thirty years. A brokerage account holding stock you bought long ago and never sold because the gain kept getting bigger. Maybe a Roth you opened late.
Retiring is no longer the open question. The question is what happens each time money leaves one of those accounts. Take a little more from the IRA, and more of your Social Security may become taxable. Sell the old stock and the gain lands on top of the pension. Convert to a Roth, and the tax is due next April.
Or you are twenty years from any of that. You live in Lakewood Ranch, two paychecks come in, and the mortgage, college accounts, and 401(k)s all want the next dollar.
The lives are different. Underneath, the problem is the same. Decisions that look separate are connected, and the order you make them in changes the result.
Holland Capital starts with what the money is for. The investment decisions come after that.
What We Look at First
Whether you are drawing on your savings or still adding to them, we start in the same place. What comes in each month, and from where? What goes out? What do you own, which kind of account holds it, and what would it cost in tax to use?
Then we look for decisions with a date attached. A year when income drops. A child who starts college. The birthday when required distributions begin. The year a mortgage is paid off.
Those dates tell us where the choices are. A withdrawal, conversion, sale, or contribution looks different depending on which year it lands in.
When the Pension and Social Security Already Pay the Bills
You may already have the easy part of retirement solved. The monthly income is there. What is left is harder to see because it often shows up only on a tax return.
A pension is generally taxable income, and it arrives whether you need it or not. Every other dollar you take can stack on top of it. An IRA withdrawal can cause more of your Social Security to become taxable. A large enough increase in income can also raise your Medicare premiums because the surcharge is generally based on your income from two years earlier.
Then required distributions begin at age 73 or 75 depending on the year you were born. The IRA starts adding income you may not need to spend. For some people, larger tax bills arrive well after the last paycheck.
Nearly two in five Sarasota County residents are 65 or older, according to Census Bureau estimates.
So the work is a projection, not a single tax year. We map what your income looks like now, once Social Security is fully in place, when required distributions start, and later, when one of you may be filing as a single taxpayer with narrower brackets. Then we decide how much to take from each account in each of those years. We work through that order as part of retirement planning.
That may mean drawing more from the IRA in lower-income years so a larger balance does not create more taxable income later. It may mean a Roth conversion in some years and none in others. It may mean selling the old stock gradually, or keeping some of it so your heirs may receive a step-up in cost basis.
The point is to see the next fifteen years before deciding what to do this year. The sequence itself is the subject of our guide to a retirement withdrawal strategy.
RETIREMENT ENGINEERING™
The Order Matters
Five retirement decisions and why timing matters.
In Lakewood Ranch, Everything Wants Part of the Same Paycheck
Two incomes come in. A mortgage, two 401(k) contributions, college savings, and the property tax bill go out. What is left sits in checking and never looks quite as large as it should.
Every one of those uses of money is reasonable. The unanswered question is the order.
Should the next dollar go to the 401(k), the college account, extra principal on the mortgage, or a taxable account you can reach before retirement? Does the Roth option in your workplace plan make sense at your tax bracket? If one income stopped, how long would the rest of the plan hold up?
Median household income in Lakewood Ranch is about $123,000, and four in five homes there are lived in by their owners (Census Bureau QuickFacts).
Each choice has a tradeoff you can put a number on. Pre-tax contributions cut this year’s tax bill and create taxable income later. A 529 grows free of federal income tax when the money is used for qualified education expenses. Extra mortgage principal saves the interest you otherwise would have paid, but money sent to the lender is harder to reach if you need it.
We put those choices on one timeline: when each child starts college, when you would like work to become optional, and when the house will be paid off. Then we decide how to allocate the savings. We revisit that decision when a raise, bonus, or job change moves the numbers.
What the Portfolio Is For
If a pension and Social Security cover the bills, the portfolio is not your paycheck. It can do other jobs. It may pay for a new roof and trips. It may fund gifts to children or grandchildren, cover a long stretch of care, or pass to the next generation mostly untouched. Each of those jobs has its own time frame, and the investments should reflect it.
If you are still working, part of the money has a date on it. Tuition in eight years. A target year for leaving work. That money is invested differently from money you do not expect to touch for twenty-five years.
Taxes follow the same logic. Which account holds the bonds and which holds the growth investments can change what you keep. So can the choice of which shares to sell when you need cash. Both are part of asset location and capital gains tax planning.
Nothing gets sold just to tidy up the statement. The old stock with the large gain may do more for your heirs if it is held. The fund you have owned for years may still fit. What stays and what changes are decided once the plan is clear.
The last step is investment management, and it moves when the plan moves.
Working with Holland Capital
Holland Capital Management is an independent registered investment adviser and a fiduciary. M. Chad Holland, CFA, CFP® works directly with clients and is responsible for the planning and advice.
We call our planning process Retirement Engineering™. It puts income, taxes, withdrawals, and investments in the order they have to be decided, then keeps that order current as your life changes.
Your CPA still prepares the return, and your attorney still drafts the documents. When a conversion, gift, or other planning decision reaches into their work, they see the numbers before anything is final.
The first conversation is free. If there is work worth doing after that, we will define the scope and cost before you decide whether to move forward.
Our Florida office is in Winter Park. If you are looking for a financial advisor in Sarasota, we can work together without your adviser being down the street. Most meetings are by video or phone. When it makes sense to sit down together, we can meet by appointment at the Regus center at 1990 Main Street in downtown Sarasota or the Regus center in Lakewood Ranch Corporate Park. Holland Capital does not maintain a branch office in Sarasota.
We work with clients throughout Florida. You can see the other Florida communities we serve here.
The what we do page explains how engagements are structured.
RETIREMENT ENGINEERING™
The Order Matters
Five retirement decisions and why timing matters.
Frequently Asked Questions
How Much of My Social Security Will Be Taxed?
It depends on your combined income: your adjusted gross income, plus any tax-exempt interest, plus half of your Social Security benefits.
For a married couple filing jointly, up to 50 percent of benefits can be taxable once combined income passes $32,000, and up to 85 percent can be taxable once it passes $44,000. Those thresholds are not adjusted for inflation. A pension alone can put a household above both.
Florida does not tax Social Security. The federal calculation still applies, which is one reason the size and timing of IRA withdrawals deserve attention.
Does a Roth Conversion Make Sense If My Pension Already Fills a Tax Bracket?
It can. The comparison is the tax rate on the conversion today against the rate the same money would face later.
Later may be worse than it looks. Required distributions add income every year. A surviving spouse may file as a single taxpayer with narrower brackets. Children who inherit a traditional IRA generally have to empty it within ten years, often during their own peak earning years.
A conversion also adds to this year’s income, which can raise Medicare premiums two years later. Paying the tax from money outside the IRA keeps more of the converted amount invested. We run the numbers year by year before recommending an amount.
We Have Children Heading to College and Retirement Is Fifteen Years Away. Which Comes First?
An employer match is part of your compensation, so capturing it usually comes first. After that, the answer depends on your numbers.
While you can finance college with loans, you do not have the same option when it comes to retirement. Money in retirement accounts is generally not reported as an asset on the federal student aid application, while a parent-owned 529 is. A 529 also offers tax advantages when the money is used for qualified education expenses.
The real question is how much each goal needs, when the money will be needed, and what has to happen for both goals to remain on track. We put them on the same timeline before deciding where the next dollar should go.
My Spouse Died Recently. Which Financial Decisions Need Attention First?
A few decisions have deadlines. Many others can wait until the full picture is clear.
If you were both receiving Social Security, survivor benefits need to be addressed. A pension may continue at a survivor amount if that option was chosen at retirement. Retirement accounts left to you by a spouse can often be moved into your own IRA or kept as an inherited account, and that choice can affect when withdrawals have to start.
Taxes also change on a schedule. In the year of death, a surviving spouse can generally still file a joint return. After that, the filing status usually changes unless the requirements for another status are met. Investment changes and decisions about the house often do not need to be made immediately.
Are You a Fee-Only Financial Planner in Sarasota?
We offer financial planning on a fixed-fee basis, subject to the scope of the engagement. Investment management is offered on a fee basis, generally calculated as a percentage of the assets we manage. When providing financial planning and investment advisory services, we act as a fiduciary.
Photo: Ebyabe / Wikimedia Commons / CC BY-SA 3.0, cropped.
