The Widow's Tax Penalty: Why Taxes Often Increase After a Spouse Dies

When one spouse passes away, most families are focused on grieving, supporting loved ones, and adjusting to a new normal. Taxes are rarely at the top of the priority list.

Unfortunately, the tax code doesn't pause during this difficult time.

Many surviving spouses are surprised to learn that although household income often declines after a spouse dies, their tax rate can actually increase. Financial planners often refer to this as the widow's tax penalty.

The reason is simple. Many tax rules are designed around married couples. Once a surviving spouse begins filing as a single taxpayer, those favorable rules largely disappear while much of the household income remains.

Understanding how these changes work before they're needed can help couples make more informed decisions about Roth conversions, retirement withdrawals, Medicare planning, and estate strategies.

What Is the Widow's Tax Penalty?

The widow's tax penalty isn't a separate tax imposed by the IRS.

Instead, it's the combined effect of several tax rules that become less favorable after the death of a spouse.

These changes often occur simultaneously:

• Filing status changes from Married Filing Jointly to Single.

• Tax brackets become much narrower.

• Medicare IRMAA thresholds are cut roughly in half.

• Required Minimum Distributions (RMDs) may continue on large retirement accounts.

• Investment income may remain largely unchanged.

• Social Security benefits may not decrease proportionally.

The result is that many surviving spouses pay a higher percentage of their income in taxes than they did while both spouses were living.

How Filing Status Changes After a Spouse Dies

One of the biggest changes involves tax filing status.

Generally:

• In the year a spouse dies, the surviving spouse can usually still file a joint tax return.

• Beginning the following year, most surviving spouses file as Single, unless they qualify for another filing status such as Qualifying Surviving Spouse for a limited period when dependent children are involved.

This seemingly simple change has significant tax consequences.

Why Single Filers Reach Higher Tax Brackets Faster

The federal tax brackets for single filers are much smaller than those for married couples filing jointly.

That means the same amount of taxable income may be taxed at higher marginal rates simply because the filing status changed.

Example

John and Susan report $220,000 of taxable income while filing jointly.

After John passes away:

• Susan's income falls to $185,000.

• Although her income decreased by $35,000, she's now filing as a single taxpayer.

• More of her income falls into higher tax brackets.

Her total tax bill may increase even though she has less income to spend.

Key Insight

Many people assume taxes automatically decrease after losing a spouse because household income is lower. In reality, the opposite is often true.

Medicare IRMAA Can Increase Even Faster

One of the least understood parts of the widow's tax penalty involves Medicare.

Higher-income retirees pay Income-Related Monthly Adjustment Amount (IRMAA) surcharges on:

• Medicare Part B

• Medicare Part D

While married couples benefit from higher income thresholds, surviving spouses quickly move into the much lower single thresholds.

This means someone whose Medicare premiums were previously unaffected may suddenly begin paying hundreds or even thousands of dollars more each year.

Example

A married couple with modified adjusted gross income just below an IRMAA threshold pays standard Medicare premiums.

After one spouse dies:

• Income declines modestly.

• Filing status changes to single.

• The surviving spouse exceeds the single IRMAA threshold.

Despite earning less, Medicare premiums increase substantially.

Important Note

IRMAA is based on income from two years earlier. This delay can make premium increases feel unexpected if no planning has taken place.

Required Minimum Distributions May Stay Surprisingly High

Many retirees accumulate substantial balances in traditional IRAs and 401(k)s.

When one spouse dies:

• Those retirement accounts often transfer to the surviving spouse.

• The surviving spouse eventually takes RMDs based on the combined account value.

• Filing status has changed to single.

As a result, the surviving spouse may have:

• Large taxable RMDs

• Higher tax brackets

• Higher Medicare premiums

• Increased taxation of investment income

This combination can significantly reduce after-tax retirement income.

Social Security Doesn't Always Offset the Tax Increase

After a spouse dies, one Social Security benefit typically stops while the survivor generally receives the larger of the two benefits.

Although total Social Security income often decreases, the reduction usually isn't enough to offset:

• Higher tax rates

• Larger RMDs

• Higher Medicare premiums

Many surviving spouses discover that they have less income but a larger percentage going toward taxes.

Why Roth Conversions Matter Before Widowhood

One of the most valuable planning opportunities often occurs while both spouses are still alive.

During years when couples file jointly, they may have access to:

• Lower effective tax rates

• Wider tax brackets

• Higher IRMAA thresholds

These factors can make Roth conversions significantly more attractive before the surviving spouse is forced into the single tax brackets.

Example

David and Karen retire at age 64.

Between retirement and age 73, they convert portions of their traditional IRA to a Roth IRA while filing jointly.

Several years later, David passes away.

Because much of their retirement savings has already been moved into Roth accounts:

• Karen's future RMDs are smaller.

• Taxable income is lower.

• Medicare premiums may be lower.

• She has greater flexibility when withdrawing retirement income.

The Roth conversions did not eliminate taxes. Instead, they shifted taxation into years when the couple enjoyed more favorable tax rules.

Key Insight

Many Roth conversion strategies are less about today's taxes and more about protecting the surviving spouse's future tax situation.

Other Tax Issues Surviving Spouses May Face

The widow's tax penalty extends beyond ordinary income taxes.

Additional planning issues may include:

Capital Gains

Selling appreciated investments can trigger larger taxable gains if income already places the surviving spouse in higher brackets.

Net Investment Income Tax

Higher taxable income may expose more investment earnings to additional federal taxes.

Charitable Giving

Without careful planning, charitable deductions may become less effective depending on income levels and deduction strategies.

Estate Planning

Inherited retirement accounts may eventually pass to children, who often must withdraw inherited IRA balances within ten years under current law. Large traditional IRA balances can create significant tax burdens for heirs during their highest earning years.

Common Mistakes Couples Make

Many couples unintentionally increase the future widow's tax penalty by making decisions that seem reasonable today.

Some of the most common mistakes include:

• Assuming taxes will always be lower after one spouse dies.

• Delaying Roth conversions because they focus only on today's tax bill.

• Waiting until RMDs begin before considering tax planning.

• Ignoring future Medicare premium increases.

• Keeping nearly all retirement assets in pre-tax accounts.

• Failing to coordinate investment, tax, and estate planning.

Planning Strategies to Consider

Every family's situation is different, but several strategies may help reduce future tax challenges.

These may include:

• Evaluating Roth conversions during lower-income retirement years.

• Diversifying retirement savings across taxable, tax-deferred, and Roth accounts.

• Coordinating Social Security claiming decisions.

• Managing capital gains strategically.

• Reviewing projected RMDs well before age 73.

• Modeling tax outcomes for both spouses rather than only today's joint return.

The goal isn't simply to reduce taxes this year. It's to improve lifetime after-tax income for both spouses.

Why This Planning Matters

No one likes to think about losing a spouse.

However, proactive tax planning isn't about predicting when that event will occur. It's about recognizing that one spouse will almost certainly outlive the other.

For many couples, the years before widowhood represent their best opportunity to make tax-efficient decisions while they still benefit from married filing status.

At Greenbush Financial Group, we often model retirement income under both spouses' lifetimes rather than looking only at today's tax return. That broader perspective frequently uncovers planning opportunities that could help reduce taxes, manage Medicare premiums, and preserve more after-tax wealth for the surviving spouse and future generations.

Final Thoughts

The widow's tax penalty catches many families by surprise because it isn't a single tax. It's the cumulative effect of filing status changes, compressed tax brackets, Medicare surcharges, and ongoing retirement account distributions.

While these rules can't be avoided entirely, thoughtful planning can often soften their long-term impact. For many couples, strategies such as Roth conversions, coordinated withdrawal planning, and proactive tax forecasting are most effective while both spouses are still living and filing jointly.

Understanding these issues today can help provide greater financial flexibility and peace of mind for the surviving spouse tomorrow.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

Frequently Asked Questions

1. What is the widow's tax penalty?
   The widow's tax penalty refers to the higher taxes many surviving spouses pay after transitioning from married filing jointly to single filing status. It often results from narrower tax brackets, higher Medicare IRMAA premiums, and continued taxable retirement income.
2. Do taxes always increase after a spouse dies?
   Not always. However, many surviving spouses experience higher effective tax rates even if their household income decreases because the tax rules become less favorable for single filers.
3. Can Roth conversions reduce the widow's tax penalty?
   Potentially, yes. Completing Roth conversions while both spouses are alive and filing jointly may reduce future RMDs and taxable income for the surviving spouse.
4. Does Medicare become more expensive after a spouse dies?
   It can. The income thresholds for Medicare IRMAA surcharges are significantly lower for single taxpayers, which may cause a surviving spouse to pay higher Part B and Part D premiums.
5. Why are Required Minimum Distributions a concern for surviving spouses?
   A surviving spouse often inherits the combined retirement accounts but must take RMDs as a single taxpayer. Large taxable distributions can push them into higher tax brackets and increase Medicare premiums.
6. When should couples begin planning for the widow's tax penalty?
   Ideally, planning should begin shortly before or during retirement, particularly in the years between retirement and the start of Required Minimum Distributions. Those years often provide the greatest flexibility for tax planning.

A Financial Advisor’s Pre-Retirement Checklist

Retirement is not just a financial milestone. It is a transition that changes how you generate income, pay taxes, manage healthcare, invest your savings, and plan for the future.

Many retirees focus almost entirely on building their retirement accounts, but the years immediately before retirement are often when the most important decisions get made. Choices involving Social Security, Medicare, taxes, pensions, investments, and withdrawal strategies can affect your financial security for decades.

Some of these decisions are irreversible. Others can create unexpected tax consequences or increase financial stress if they are not reviewed carefully.

Before you leave your job, here are 10 critical retirement decisions worth reviewing carefully.

1. Can You Actually Afford to Retire?

Why It Matters

This is the most important retirement question and often the most emotional one.

Many people focus on whether they have “enough” saved, but retirement planning is really about whether your income can sustainably support your lifestyle over a retirement that could last 25 to 30 years.

The biggest risk is not simply running out of money. It is retiring without understanding:

• how your income will work

• how inflation affects spending

• how market declines impact withdrawals

• how taxes reduce retirement income

• how healthcare costs fit into the plan

What to Review

• Your expected monthly retirement expenses

• Guaranteed income sources

• Investment withdrawal strategy

• Inflation assumptions

• Sequence of returns risk

• Emergency reserves

• Expected retirement longevity

Example

A couple retiring at age 62 may initially believe they only need $7,000 per month. But after factoring in healthcare premiums, inflation, travel, taxes, home maintenance, and irregular expenses, their actual spending may be closer to $9,000 monthly.

That difference can significantly impact how sustainable their retirement plan is.

Key Insight

Retirement success is not just about portfolio size. It is about whether your income plan can survive inflation, market volatility, and unexpected expenses over time.

2. When Should You Claim Social Security?

Why It Matters

Social Security is one of the most important retirement income decisions because claiming timing can permanently affect your lifetime benefits.

Many retirees underestimate:

• how much benefits increase by waiting

• the impact on surviving spouses

• how taxes affect benefits

• how working before full retirement age can temporarily reduce payments

What to Review

• Claiming at 62 vs. full retirement age vs. 70

• Spousal benefits

• Survivor benefits

• Earnings limits before full retirement age

• Taxation of benefits

• Longevity expectations

• Coordination with retirement withdrawals

Example

A retiree eligible for $2,200 monthly at full retirement age could receive roughly:

• $1,540 at age 62

• $2,200 at full retirement age

• nearly $2,900 at age 70

That difference can significantly impact lifetime household income, especially for married couples.

Important Note

The best Social Security strategy is not always about maximizing benefits. It is about coordinating benefits with taxes, investments, pensions, and overall retirement income planning.

3. Have You Planned for Healthcare and Medicare Costs?

Why It Matters

Healthcare is one of the biggest retirement expenses and one of the largest sources of financial anxiety for retirees.

People retiring before age 65 often underestimate the cost of private health insurance before Medicare begins. Others make Medicare enrollment mistakes that create lifelong penalties or unexpected coverage gaps.

What to Review

• Healthcare costs before Medicare eligibility

• Medicare enrollment deadlines

• Medicare Part B and Part D coverage

• Medicare Advantage vs. Medigap

• IRMAA surcharges

• Long-term care exposure

• Health Savings Account planning

Example

A retiree who delays Medicare enrollment because they misunderstand employer coverage rules could face permanent premium penalties later.

Similarly, higher-income retirees may unknowingly trigger IRMAA surcharges that significantly increase Medicare premiums.

Key Insight

Healthcare planning is not just about insurance coverage. It is also about tax planning, income management, and preparing for future care needs.

4. Have You Reviewed Your Retirement Tax Strategy?

Why It Matters

One of the biggest surprises retirees face is discovering that retirement does not automatically lower taxes.

Different retirement accounts are taxed differently, and poor withdrawal sequencing can unintentionally push retirees into higher tax brackets.

What to Review

• Roth conversion opportunities

• Future RMD exposure

• Tax diversification

• Capital gains planning

• Social Security taxation

• Medicare IRMAA thresholds

• Withdrawal sequencing

Example

A retiree with large traditional IRA balances may face substantial required minimum distributions later in retirement, even if they do not need the income.

Strategic Roth conversions before RMD age can sometimes reduce future tax exposure and improve long-term flexibility.

Important Note

Many retirees focus on investment returns but overlook lifetime tax efficiency. The way retirement income is structured can be just as important as portfolio performance.

5. Do You Have a Reliable Retirement Income Strategy?

Why It Matters

Retirement changes the financial mindset from accumulation to distribution.

That transition can feel uncomfortable because your paycheck stops and your portfolio becomes the primary income source.

Without a clear strategy, retirees often either overspend too early or become afraid to spend at all.

What to Review

• Which accounts to withdraw from first

• Cash reserve strategy

• Sequence of returns risk

• Dividend income assumptions

• Withdrawal sustainability

• Coordination between income sources

Example

Two retirees with identical portfolios can experience very different outcomes depending on when market declines occur early in retirement.

Large withdrawals during market downturns can permanently damage long-term portfolio sustainability.

Key Insight

A retirement income plan should balance:

• stability

• flexibility

• tax efficiency

• long-term growth potential

6. Is Your Investment Risk Appropriate for Retirement?

Why It Matters

Many people approaching retirement ask the same questions:

• “Am I taking too much risk?”

• “What if there’s another 2008?”

• “Should I move everything to cash?”

The challenge is balancing protection with growth.

Being too aggressive can increase volatility at the wrong time. But being too conservative can create inflation risk and reduce long-term purchasing power.

What to Review

• Current asset allocation

• Portfolio downside risk

• Retirement timeline

• Cash reserves

• Bond allocation

• Inflation protection

• Income needs from investments

Example

A retiree holding overly conservative investments may struggle to maintain purchasing power over a 25-year retirement, especially during periods of elevated inflation.

Important Note

Retirement investing is not about eliminating risk entirely. It is about managing risk appropriately for your goals, income needs, and time horizon.

7. Have You Reviewed Your Pension Options Carefully?

Why It Matters

Pension elections are often irreversible.

For retirees with pensions, decisions involving lump sums, survivor benefits, and payout structures can have major long-term implications for household income and estate planning.

What to Review

• Lump sum vs. monthly pension

• Survivor benefit elections

• Inflation adjustments

• Pension solvency considerations

• Tax implications

• Coordination with Social Security

Example

Choosing the highest monthly pension payout without survivor protection may leave a surviving spouse with significantly reduced household income later.

Key Insight

The best pension decision depends on:

• health

• marital status

• other retirement assets

• legacy goals

• guaranteed income needs

8. Have You Updated Your Estate Plan and Beneficiaries?

Why It Matters

Many retirees assume their estate documents are current when they have not reviewed them in years.

Outdated beneficiary designations and missing legal documents can create unnecessary complications for family members later.

What to Review

• Wills and trusts

• Powers of attorney

• Healthcare directives

• Beneficiary designations

• Transfer-on-death accounts

• Inherited IRA rules

• Estate tax considerations

Example

An outdated IRA beneficiary form can override instructions written in a will.

That mistake can unintentionally direct retirement assets to the wrong person.

Important Note

Estate planning is not just about wealth transfer. It is also about maintaining control, simplifying administration, and protecting family members during difficult situations.

9. Have You Reviewed Your Debt and Spending Plan?

Why It Matters

Retirement spending often changes more than people expect.

Some retirees spend less. Others spend significantly more during the first decade of retirement due to travel, hobbies, home projects, or helping family members financially.

What to Review

• Mortgage payoff decisions

• Credit card debt

• Retirement budget assumptions

• Downsizing considerations

• Support for adult children

• Large one-time expenses

• Lifestyle expectations

Example

A retiree may choose to keep a low-interest mortgage rather than aggressively paying it off in order to preserve liquidity and investment flexibility.

The right decision depends on both financial and emotional factors.

Key Insight

A realistic retirement spending plan should account for both expected and unexpected expenses.

10. What Happens If Something Goes Wrong?

Why It Matters

One of the biggest retirement planning mistakes is assuming everything will go according to plan.

Strong retirement planning includes preparing for uncertainty.

What to Review

• Long-term care exposure

• Widowhood planning

• Emergency reserves

• Market downturn scenarios

• Caregiving costs

• Family health history

• Insurance coverage

Example

A major healthcare event or long-term care need can dramatically change retirement spending and income needs later in life.

Preparing in advance can help reduce financial stress during difficult situations.

Important Note

Retirement planning is not about predicting the future perfectly. It is about building flexibility into the plan.

Common Retirement Mistakes to Avoid

Some of the most common retirement mistakes happen during the transition into retirement itself.

These include:

• Claiming Social Security too early without reviewing alternatives

• Ignoring tax planning opportunities before RMD age

• Underestimating healthcare costs

• Taking too much or too little investment risk

• Failing to stress-test retirement income

• Overlooking beneficiary designations

• Retiring without a coordinated withdrawal strategy

• Assuming retirement spending will remain constant

Final Thoughts

Retirement is one of the biggest financial transitions of your life. The decisions made in the years immediately before retirement can affect your income, taxes, healthcare costs, and financial flexibility for decades.

Many of the most expensive retirement mistakes are preventable with proactive planning and careful coordination.

At Greenbush Financial Group, we believe retirement planning should go beyond investment performance alone. A successful retirement plan coordinates income, taxes, healthcare, investments, estate planning, and long-term risk management into a strategy designed to support both confidence and flexibility throughout retirement.

Before you stop working, make sure you review the decisions that matter most.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

FAQ Section

1. What is the most important financial decision before retirement?

   The most important decision is determining whether your retirement income plan is sustainable. This includes reviewing spending needs, withdrawal strategies, taxes, inflation, and healthcare costs.

2. When should I claim Social Security?

   The right claiming age depends on your health, marital status, income needs, longevity expectations, and overall retirement plan. Claiming early permanently reduces benefits, while delaying can increase lifetime income.

3. How much should I have saved before retirement?

   There is no universal number. Retirement readiness depends on your expected spending, income sources, taxes, healthcare costs, and lifestyle goals.

4. What are the biggest retirement tax mistakes?

   Common mistakes include ignoring Roth conversion opportunities, triggering higher Medicare premiums, poor withdrawal sequencing, and failing to prepare for RMDs.

5. Should I pay off my mortgage before retirement?

   It depends on your cash flow, interest rate, liquidity needs, and personal comfort level. Some retirees prioritize debt elimination, while others prefer maintaining investment flexibility.

6. How do I prepare for healthcare costs in retirement?

   Review Medicare options, estimate out-of-pocket expenses, understand IRMAA rules, and consider how long-term care costs could affect your retirement plan.

7. What happens if the market crashes early in retirement?

   Early retirement market declines can increase sequence of returns risk, especially when withdrawals are occurring simultaneously. Maintaining proper diversification and cash reserves can help reduce this risk.

8. Why is retirement planning more than just investing?

   Retirement planning also involves taxes, healthcare, income coordination, estate planning, Social Security, spending strategy, and risk management decisions that affect long-term financial security.

Do I Really Need Disability Insurance? What Working Adults Should Understand

Many people insure their home, car, and life but overlook the income that supports all of those expenses. Disability insurance is designed to replace part of your income if illness or injury prevents you from working. Understanding the different types of disability coverage, how employer plans work, and where financial gaps may exist can help protect long-term financial stability. At Greenbush Financial Group, we often find that income protection becomes more important as careers, family responsibilities, and retirement savings grow.

Most People Protect Their Property Before Protecting Their Income

Many households insure:

• Their home

• Their car

• Their health

• Their life

But far fewer spend time thinking about what would happen if they suddenly could not work for months or years.

For most working adults, future earning power is one of their largest financial assets.

That income supports:

• Mortgage payments

• Retirement savings

• Healthcare costs

• Family expenses

• College savings

• Everyday living expenses

Disability insurance exists to help protect that income if illness or injury interrupts the ability to work.

The goal is not expecting the worst.

The goal is understanding how financial stability would be affected if paychecks unexpectedly stopped.

What Is Disability Insurance?

Disability insurance helps replace a portion of income if a person becomes unable to work because of:

• Illness

• Injury

• Medical conditions

• Certain disabilities

Coverage typically pays monthly benefits for a defined period depending on the policy structure.

Unlike health insurance, disability insurance does not primarily cover medical bills.

It helps replace lost income.

Why Disability Insurance Matters More Than Many People Realize

Many people associate disability with catastrophic accidents.

But long-term disabilities are often caused by:

• Cancer

• Back injuries

• Chronic illness

• Neurological disorders

• Mental health conditions

• Heart disease

• Surgery recovery complications

In many cases, disabilities are medical events rather than dramatic accidents.

The financial impact can become significant because expenses usually continue even when income slows or stops.

The Two Main Types of Disability Insurance

Short-Term Disability Insurance

Short-term disability coverage typically provides income replacement for temporary situations.

Coverage periods often range from:

• A few weeks

• To several months

Common Uses

Short-term disability may help during:

• Surgery recovery

• Pregnancy and childbirth

• Temporary illnesses

• Injuries requiring recovery time

Benefits often begin quickly after a waiting period of:

• A few days

• Or a couple of weeks

Long-Term Disability Insurance

Long-term disability insurance is designed for more serious or extended work interruptions.

Coverage may last:

• Several years

• Until retirement age

• Or for a specific policy duration

Long-term disability becomes especially important for protecting:

• Retirement savings

• Family cash flow

• Long-term financial plans

Because prolonged income loss can significantly affect future financial security.

Employer Disability Insurance vs. Individual Coverage

Many employees already have some disability insurance through work.

But there are important details people often overlook.

Employer Coverage May:

• Replace only part of income

• Have benefit caps

• End if employment changes

• Be taxable

• Offer limited portability

Some plans replace:

• 50%–60% of salary

Which may sound reasonable until households compare it against actual expenses.

Example

Suppose someone earns:

• $140,000 annually

Employer disability coverage replaces:

• 60% of salary

But benefits are taxable.

Actual take-home replacement income may be significantly lower than expected while expenses remain largely unchanged.

Individual Disability Insurance

Individual policies are purchased privately and may offer:

• More customized coverage

• Portable benefits

• Stronger definitions of disability

• Higher income protection flexibility

Professionals with specialized careers often explore individual policies because their income may be difficult to replace.

Understanding “Own Occupation” vs. “Any Occupation”

This is one of the most important disability insurance concepts.

Own Occupation Coverage

This coverage generally pays benefits if you cannot perform the duties of your specific profession.

Example:

A surgeon unable to operate because of hand injuries may still technically be able to work elsewhere, but not within their specialized occupation.

Own occupation policies may still provide benefits.

Any Occupation Coverage

This standard is stricter.

Benefits may only apply if the person cannot reasonably work in almost any occupation.

This distinction can dramatically affect how coverage functions during a claim.

How Much Disability Coverage Do People Typically Need?

The answer depends on factors such as:

• Income level

• Savings

• Family obligations

• Debt

• Career specialization

• Retirement readiness

Questions worth considering include:

• How long could savings support expenses?

• Would a spouse’s income be enough?

• Would retirement contributions stop?

• Could mortgage payments continue comfortably?

Disability insurance is often less about replacing every dollar and more about protecting financial stability during a difficult period.

Who Often Benefits Most From Disability Insurance?

Coverage tends to become more important when people have:

• High incomes

• Dependents

• Mortgage obligations

• Specialized careers

• Limited liquid savings

• Long working years ahead

Especially for younger professionals, future earning power may greatly exceed current investment assets.

People Who May Need Less Disability Coverage

Not everyone needs the same level of protection.

Some people may need less coverage if they have:

• Significant investment income

• Pension income

• Substantial liquid assets

• Minimal debt

• Financial independence already achieved

The key is evaluating how dependent the household remains on earned income.

A Real-World Example

Mark is 42 years old and earns:

• $180,000 annually

He and his spouse have:

• Young children

• A mortgage

• Ongoing retirement savings goals

Initially, Mark assumes his employer coverage is sufficient.

But after reviewing the details, he discovers:

• Benefits are taxable

• Coverage replaces less income than expected

• Bonuses are excluded

• Coverage would not fully support household expenses

He eventually supplements employer coverage with an individual long-term disability policy.

The decision was not based on fear.

It was based on recognizing how dependent the household remained on his future earnings.

Common Disability Insurance Mistakes

1. Assuming Employer Coverage Is Enough

Many people never review:

• Benefit percentages

• Tax treatment

• Coverage limits

• Waiting periods

2. Waiting Until Health Changes Occur

Coverage availability and pricing may change significantly after medical diagnoses.

3. Focusing Only on Accidents

Many disabilities stem from illness, not catastrophic injuries.

4. Ignoring Household Cash Flow Needs

Disability planning should evaluate:

• Fixed expenses

• Debt obligations

• Family support needs

• Long-term savings goals

5. Overinsuring or Underinsuring

Coverage should fit actual financial exposure and long-term needs.

Questions to Ask Before Buying Disability Insurance

Important questions include:

• How much income would actually need replacement?

• What coverage already exists through work?

• Are benefits taxable?

• How long could emergency savings last?

• Does the policy use own occupation or any occupation definitions?

• How long do benefits last?

• What waiting period applies?

• Would my spouse or family remain financially stable?

The answers often reveal whether meaningful protection gaps exist.

The Retirement Planning Connection

Disability insurance is often overlooked in retirement planning conversations.

But a major disability during working years can affect:

• Retirement savings

• Social Security timing

• Investment growth

• Debt repayment

• College funding

• Long-term financial independence

Protecting income during working years may help protect retirement goals later.

Final Thoughts

Disability insurance is not always the most exciting financial topic.

But for many working households, protecting future income may be just as important as protecting investments or property.

At Greenbush Financial Group, we often encourage clients to evaluate disability coverage not from a fear perspective, but from a financial planning perspective.

The question is not:
“What is the worst-case scenario?”

The better question is:
“How would the household function financially if earned income unexpectedly stopped for an extended period?”

For some people, the answer may reveal meaningful protection gaps.

For others, existing assets and flexibility may already provide enough security.

The key is understanding the tradeoffs before a health event forces the conversation unexpectedly.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

FAQ

1. What is disability insurance?
   Disability insurance helps replace part of your income if illness or injury prevents you from working.
2. What is the difference between short-term and long-term disability insurance?
   Short-term disability usually covers temporary situations lasting weeks or months, while long-term disability covers extended work interruptions that may last years.
3. Is disability insurance worth it?
   For many working adults, especially those dependent on earned income, disability insurance may help protect financial stability and long-term goals.
4. Does employer disability insurance provide enough coverage?
   Sometimes, but many employer plans replace only part of income and may include taxable benefits or coverage limits.
5. What does "own occupation" disability insurance mean?
   Own occupation coverage generally pays benefits if you cannot perform your specific profession, even if you could work elsewhere.
6. Are disability insurance benefits taxable?
   It depends on how premiums are paid. Employer-paid benefits are often taxable, while individually funded policies may provide tax-free benefits.
7. Who benefits most from disability insurance?
   High earners, professionals, families with dependents, and households heavily dependent on employment income often benefit most from coverage.
8. What is the biggest mistake people make with disability insurance?
   One of the biggest mistakes is assuming employer coverage fully protects household income without reviewing the actual policy details.

2026 Roth IRA Conversions Explained: Smart Timing and Costly Mistakes

Roth conversions can be one of the most powerful tax planning tools in retirement, but they are not always beneficial. A Roth conversion involves moving money from a pre-tax account into a Roth account and paying taxes now to avoid taxes later. At Greenbush Financial Group, our analysis shows that Roth conversions are most effective when done strategically across multiple years, not as a one-time decision.

What Is a Roth Conversion and How Does It Work?

A Roth conversion moves funds from a Traditional IRA or 401(k) into a Roth IRA or 401(k).

Key Mechanics

• Converted amount is taxed as ordinary income

• No early withdrawal penalty if done correctly

• Future growth and withdrawals are tax-free

• No Required Minimum Distributions (RMDs) for Roth IRAs

Example

• Convert $50,000 from an IRA to a Roth IRA

• Pay taxes on $50,000 this year

• Future withdrawals are tax-free

At Greenbush Financial Group, we view Roth conversions as a way to “prepay taxes” at potentially lower rates.

When Roth Conversions Make Sense

There are specific scenarios where Roth conversions can significantly improve long-term outcomes.

1. Low-Income Years in Early Retirement

The period between retirement and starting Social Security or RMDs is often ideal.

• Lower taxable income

• Opportunity to fill lower tax brackets

• Reduce future tax burden

2. Before Required Minimum Distributions (RMDs)**

RMDs can force higher taxable income later in retirement.

• Converting early reduces future RMDs

• Helps avoid higher tax brackets in your 70s

3. Expecting Higher Future Tax Rates

If you believe your future tax rate will be higher:

• Paying taxes now may be beneficial

• Locks in current tax rates

4. Large Pre-Tax Account Balances

High IRA or 401(k) balances can create tax challenges later.

• Large RMDs

• Increased IRMAA surcharges

• Higher Social Security taxation

5. Leaving Assets to Heirs

Roth accounts can be more tax-efficient for beneficiaries.

• Tax-free withdrawals for heirs

• No lifetime RMDs for original owner

At Greenbush Financial Group, Roth conversions are often used as part of a broader estate and tax planning strategy.

When Roth Conversions May Not Make Sense

Roth conversions are not always the right move.

1. Already in a High Tax Bracket

If converting pushes you into a higher bracket:

• You may pay more tax than necessary

• Reduces the benefit of the conversion

2. Short Time Horizon

If you expect to use the money soon:

• Limited time for tax-free growth

• Less benefit from conversion

3. Paying Taxes From the Conversion Itself

Using IRA funds to pay taxes reduces the amount converted.

• Decreases long-term growth potential

• Less efficient overall

4. Expecting Lower Future Tax Rates

If your income will decrease later:

• You may pay more tax now than necessary

5. Impact on Medicare and Social Security

Conversions increase taxable income.

• May trigger IRMAA surcharges

• Can increase taxation of Social Security

At Greenbush Financial Group, we often see Roth conversions backfire when these factors are not considered.

The “Tax Bracket Filling” Strategy

One of the most effective ways to approach Roth conversions is by filling up lower tax brackets.

How It Works

• Identify your current tax bracket

• Convert just enough to stay within that bracket

• Avoid jumping into higher brackets

Example

• Top of 12% bracket = target income level

• Convert enough to reach that limit

• Stop before entering the 22% bracket

This strategy spreads conversions over multiple years, reducing overall tax impact.

Roth Conversions and IRMAA Considerations

Roth conversions increase your income for that year, which can affect Medicare premiums.

Key Impact

• Higher income can trigger IRMAA surcharges

• IRMAA is based on income from two years prior

Planning Tip

Balance Roth conversions with IRMAA thresholds to avoid unnecessary premium increases.

A Multi-Year Roth Conversion Strategy Example

Scenario

• Age 62, recently retired

• $800,000 in IRA

• Low income before Social Security

Strategy

• Convert $40,000–$60,000 annually

• Stay within a lower tax bracket

• Delay Social Security

Outcome

• Reduced future RMDs

• Lower lifetime taxes

• Increased tax-free income later

At Greenbush Financial Group, this type of phased approach is often more effective than a single large conversion.

Common Roth Conversion Mistakes

• Converting too much in one year

• Ignoring tax bracket thresholds

• Overlooking IRMAA impacts

• Not coordinating with Social Security timing

• Failing to plan conversions over multiple years

Final Thoughts

Roth conversions can be a powerful tool, but only when used strategically. The goal is not simply to convert assets, but to reduce lifetime taxes and create more flexibility in retirement income.

At Greenbush Financial Group, our analysis shows that the most successful strategies involve careful timing, tax bracket management, and long-term planning.

Rob Mangold

About Rob……...

Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.

1. Is it a bad idea to retire in a down market?
   Not necessarily, but it increases sequence of returns risk and requires careful planning.
2. How much cash and short-term fixed income should I have in retirement?
   Typically 1 to 3 years of living expenses.
3. Should I stop withdrawals during a downturn?
   Not entirely, but reducing withdrawals can improve long-term outcomes.
4. Can a market downturn ruin my retirement plan?
   It can if not managed properly, especially in the early years of retirement.
5. What is the best strategy during a market downturn?
   Maintain a cash reserve, adjust withdrawals, stay invested, and focus on long-term planning.

Planning for Healthcare Costs in Retirement: Why Medicare Isn’t Enough

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

When most people picture retirement, they imagine travel, hobbies, and more free time—not skyrocketing healthcare bills. Yet, one of the biggest financial surprises retirees face is how much they’ll actually spend on medical expenses.

Many retirees dramatically underestimate their healthcare costs in retirement, even though this is the stage of life when most people access the healthcare system the most. While it’s common to pay off your mortgage leading up to retirement, it’s not uncommon for healthcare costs to replace your mortgage payment in retirement.

In this article, we’ll cover:

• Why Medicare isn’t free—and what parts you’ll still need to pay for.

• What to consider if you retire before age 65 and don’t yet qualify for Medicare.

• The difference between Medicare Advantage and Medicare Supplement plans.

• How prescription drug costs can take retirees by surprise.

• The reality of long-term care expenses and how to plan for them.

Planning for Healthcare Before Age 65

For those who plan to retire before age 65, healthcare planning becomes significantly more complicated—and expensive. Since Medicare doesn’t begin until age 65, retirees need to bridge the coverage gap between when they stop working and when Medicare starts.

If your former employer offers retiree health coverage, that’s a tremendous benefit. However, it’s critical to understand exactly what that coverage includes:

• Does it cover just the employee, or both the employee and their spouse?

• What portion of the premium does the employer pay, and how much is the retiree responsible for?

• What out-of-pocket costs (deductibles, copays, coinsurance) remain?

If you don’t have retiree health coverage, you’ll need to explore other options:

• COBRA coverage through your former employer can extend your workplace insurance for up to 18 months, but it’s often very expensive since you’re paying the full premium plus administrative fees.

• ACA marketplace plans (available through your state’s health insurance exchange) may be an alternative, but premiums and deductibles can vary widely depending on your age, income, and coverage level.

In many cases, healthcare costs for retirees under 65 can be substantially higher than both Medicare premiums and the coverage they had while working. This makes it especially important to build early healthcare costs into your retirement budget if you plan to leave the workforce before age 65.

Medicare Is Not Free

At age 65, most retirees become eligible for Medicare, which provides a valuable foundation of healthcare coverage. But it’s a common misconception that Medicare is free—it’s not.

Here’s how it breaks down:

• Part A (Hospital Insurance): Usually free if you’ve paid into Social Security for at least 10 years.

• Part B (Medical Insurance): Covers doctor visits, outpatient care, and other services—but it has a monthly premium based on your income.

• Part D (Prescription Drug Coverage): Also carries a monthly premium that varies by plan and income level.

Example:

Let’s say you and your spouse both enroll in Medicare at 65 and each qualify for the base Part B and Part D premiums.

• In 2025, the standard Part B premium is approximately $185 per month per person.

• A basic Part D plan might average around $36 per month per person.

Together, that’s about $220 per person, or $440 per month for a couple—just for basic Medicare coverage. And this doesn’t include supplemental or out-of-pocket costs for things Medicare doesn’t cover.

NOTE: Some public sector or state plans even provide Medicare Part B premium reimbursement once you reach 65—a feature that can be extremely valuable in retirement.

Medicare Advantage and Medicare Supplement Plans

While Medicare provides essential coverage, it doesn’t cover everything. Most retirees need to choose between two main options to fill in the gaps:

• Medicare Advantage (Part C) plans, offered by private insurers, bundle Parts A, B, and often D into one plan. These plans usually have lower premiums but can come with higher out-of-pocket costs and limited provider networks.

• Medicare Supplement (Medigap) plans, which work alongside traditional Medicare, help pay for deductibles, copayments, and coinsurance.

It’s important not to simply choose the lowest-cost plan. A retiree’s prescription needs, frequency of care, and preferred doctors should all factor into the decision. Choosing the cheapest plan could lead to much higher out-of-pocket expenses in the long run if the plan doesn’t align with your actual healthcare needs.

Prescription Drug Costs: A Hidden Retirement Expense

Prescription drug coverage is one of the biggest cost surprises for retirees. Even with Medicare Part D, out-of-pocket expenses can add up quickly depending on the medications you need.

Medicare Part D plans categorize drugs into tiers:

• Tier 1: Generic drugs (lowest cost)

• Tier 2: Preferred brand-name drugs (moderate cost)

• Tier 3: Specialty drugs (highest cost, often with no generic alternatives)

If you’re prescribed specialty or non-generic medications, you could spend hundreds—or even thousands—per month despite having coverage.

To help, some states offer programs to reduce these costs. For example, New York’s EPIC program helps qualifying seniors pay for prescription drugs by supplementing their Medicare Part D coverage. It’s worth checking if your state offers a similar benefit.

Planning for Long-Term Care

One of the most misunderstood aspects of Medicare is long-term care coverage—or rather, the lack of it.

Medicare only covers a limited number of days in a skilled nursing facility following a hospital stay. Beyond that, the costs become the retiree’s responsibility. Considering that long-term care can easily exceed $120,000 per year, this can be a major financial burden.

Planning ahead is essential. Options include:

• Purchasing a long-term care insurance policy to offset future costs.

• Self-insuring, by setting aside savings or investments for potential care needs.

• Planning to qualify for Medicaid through strategic trust planning

Whichever route you choose, addressing long-term care early is key to protecting both your assets and your peace of mind.

Final Thoughts

Healthcare is one of the largest—and most underestimated—expenses in retirement. While Medicare provides a foundation, retirees need to plan for premiums, prescription costs, supplemental coverage, and potential long-term care needs.

If you plan to retire before 65, early planning becomes even more critical to bridge the gap until Medicare begins. By taking the time to understand your options and budget accordingly, you can enter retirement with confidence—knowing that your healthcare needs and your financial future are both protected.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQ)

Why isn’t Medicare enough to cover all healthcare costs in retirement?
While Medicare provides a solid foundation of coverage starting at age 65, it doesn’t pay for everything. Retirees are still responsible for premiums, deductibles, copays, prescription drugs, and long-term care—expenses that can add up significantly over time.

What should I do for healthcare coverage if I retire before age 65?
If you retire before Medicare eligibility, you’ll need to bridge the gap with options like COBRA, ACA marketplace plans, or employer-sponsored retiree coverage. These plans can be costly, so it’s important to factor early healthcare premiums and out-of-pocket expenses into your retirement budget.

What are the key differences between Medicare Advantage and Medicare Supplement plans?
Medicare Advantage (Part C) plans combine Parts A, B, and often D, offering convenience but limited provider networks. Medicare Supplement (Medigap) plans work alongside traditional Medicare to reduce out-of-pocket costs. The right choice depends on your budget, health needs, and preferred doctors.

How much should retirees expect to pay for Medicare premiums?
In 2025, the standard Medicare Part B premium is around $185 per month, while a basic Part D plan averages about $36 monthly. For a married couple, that’s roughly $440 per month for both—before adding supplemental coverage or out-of-pocket expenses. These costs should be built into your retirement spending plan.

Why are prescription drugs such a major expense in retirement?
Even with Medicare Part D, out-of-pocket drug costs can vary widely based on your prescriptions. Specialty and brand-name medications often carry high copays. Programs like New York’s EPIC can help eligible seniors manage these costs by supplementing Medicare coverage.

Does Medicare cover long-term care expenses?
Medicare only covers limited skilled nursing care following a hospital stay and does not pay for most long-term care needs. Since extended care can exceed $120,000 per year, retirees should explore options like long-term care insurance, Medicaid planning, or setting aside savings to self-insure.

How can a financial advisor help plan for healthcare costs in retirement?
A financial advisor can estimate future healthcare expenses, evaluate Medicare and supplemental plan options, and build these costs into your retirement income plan. At Greenbush Financial Group, we help retirees design strategies that balance healthcare needs with long-term financial goals.

Special Tax Considerations in Retirement

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

You might think that once you stop working, your tax situation becomes simpler — after all, no more paychecks! But for many retirees, taxes actually become more complex. That’s because retirement often comes with multiple income sources — Social Security, pensions, pre-tax retirement accounts, brokerage accounts, cash, and more.

At the same time, retirement can present unique tax-planning opportunities. Once the paychecks stop, retirees often have more control over which tax bracket they fall into by strategically deciding which accounts to pull income from.

In this article, we’ll cover:

• How Social Security benefits are taxed

• Pension income rules (and how they vary by state)

• Taxation of pre-tax retirement accounts like IRAs and 401(k)s

• Developing an efficient distribution strategy

• Special tax deductions and tax credits for retirees

• Required Minimum Distribution (RMD) planning

• Charitable giving strategies, including QCDs and donor-advised funds

How Social Security Is Taxed

Social Security benefits may be tax-free, partially taxed, or mostly taxed — depending on your provisional income. Provisional income is calculated as:

Adjusted Gross Income (AGI) + Nontaxable Interest + ½ of Your Social Security Benefits.

Here’s a quick summary of how benefits are taxed at the federal level:

While Social Security is taxed at the federal level, most states do not tax these benefits. However, a handful of states — including Colorado, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont — do impose some form of state tax on Social Security income.

Pension Income

If you’re fortunate to receive a state pension, your state of residence plays a big role in determining how that income is taxed.

• If you have a state pension and continue living in the same state where you earned the pension, many states exclude that income from state tax.

• However, with state pensions, if you move to another state, and that state has income taxation at the stateve level, your pension may become taxable in your new state of domicile.

• If you have a pension with a private sector employer, often times those pension payment are full taxable at both the federal and state level.

Some states also provide preferential treatment for private pensions or IRA income. For example, New York excludes up to $20,000 per person in pension or IRA distributions from state income tax each year — a significant benefit for retirees managing taxable income.

Taxation of Pre-Tax Retirement Accounts

Pre-tax retirement accounts — including Traditional IRAs, 401(k)s, 403(b)s, and inherited IRAs — are typically taxed as ordinary income when distributions are made.

However, the tax treatment at the state level varies:

• Some states (like New York) exclude a set amount – for example New York excludes the first $20,000 per person per year — from state taxation.

• Others tax all pre-tax distributions in full.

• A few states offer income-based exemptions or reduced rates for lower-income retirees.

Because these rules differ so widely, it’s important to research your state’s tax laws.

Developing a Tax-Efficient Distribution Strategy

A well-designed distribution strategy can make a big difference in how much tax you pay throughout retirement.

Many retirees have income spread across:

• Pre-tax accounts (401(k), IRA)

• After-tax brokerage accounts

• Roth IRAs

• Social Security

Let’s say you need $70,000 per year to maintain your lifestyle. Some of that may come from Social Security, but you’ll need to decide where to withdraw the rest.

With smart planning, you can blend withdrawals from different accounts to minimize your overall tax liability and control your tax bracket year by year. The goal isn’t just to reduce taxes today — it’s to manage them over your lifetime.

Special Deductions and Credits in Retirement

Your Adjusted Gross Income (AGI) or Modified AGI doesn’t just determine your tax bracket — it also affects which deductions and credits you can claim.

A few important highlights:

• The Big Beautiful Tax Bill that just passed in 2025 introduces a new Age 65+ tax deduction of $6,000 per person over and above the existing standard deduction.

• Certain deductions and credits, however, phase out once income exceeds specific thresholds.

• Your income level also affects Medicare premiums for Parts B and D, which increase if your income surpasses the IRMAA thresholds (Income-Related Monthly Adjustment Amount).

Managing your taxable income through careful distribution planning can therefore help preserve deductions and keep Medicare premiums lower.

Required Minimum Distribution (RMD) Planning

Once you reach age 73 or 75 (depending on your birth year), you must begin taking Required Minimum Distributions (RMDs) from your pre-tax retirement accounts — even if you don’t need the money.

These RMDs can significantly increase your taxable income, especially when stacked on top of Social Security and other income sources.

A proactive strategy is to take controlled distributions or perform Roth conversions before RMD age. Doing so can reduce the size of your future RMDs and potentially lower your lifetime tax bill by spreading taxable income across more favorable tax years.

Charitable Giving Strategies

Many retirees are charitably inclined, but since most take the standard deduction, they don’t receive an additional tax benefit for their donations.

There are two primary strategies to consider:

1. Donor-Advised Funds (DAFs) – You can “bunch” several years’ worth of charitable giving into one tax year to exceed the standard deduction, then direct the funds to charities over time.

2. Qualified Charitable Distributions (QCDs) – Once you reach age 70½, you can donate directly from your IRA to a qualified charity. These QCDs are excluded from taxable income and count toward your RMD once those begin.

Final Thoughts

Retirement opens up new opportunities — and new complexities — when it comes to managing taxes. Understanding how your various income sources interact and planning your distributions strategically can help you:

• Reduce taxes over your lifetime

• Preserve more of your retirement income

• Maintain flexibility and control over your financial future

As always, it’s wise to coordinate with a financial advisor and tax professional to ensure your retirement tax strategy aligns with your goals, income sources, and state tax rules.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQ)

How are Social Security benefits taxed in retirement?
Depending on your provisional income, up to 85% of your Social Security benefits may be subject to federal income tax. Most states don’t tax these benefits, though a few—including Colorado, Minnesota, and Utah—do.

How is pension income taxed, and does it vary by state?
Pension income is typically taxable at the federal level, but state rules differ. Some states exclude public pensions from taxation or offer partial exemptions—like New York’s $20,000 per person exclusion for pension or IRA income. If you move to another state in retirement, your pension’s tax treatment could change.

What taxes apply to withdrawals from pre-tax retirement accounts?
Distributions from Traditional IRAs, 401(k)s, and similar pre-tax accounts are taxed as ordinary income. Some states offer exclusions or partial deductions, while others tax these withdrawals in full. Understanding your state’s rules is essential for accurate tax planning.

What is a tax-efficient withdrawal strategy in retirement?
A tax-efficient strategy blends withdrawals from different account types—pre-tax, Roth, and after-tax—to control your annual tax bracket. The goal is not just to lower taxes today but to reduce lifetime taxes by managing income across multiple years and minimizing required minimum distributions later.

What new tax deductions or credits are available for retirees?
The 2025 tax law introduced an additional $6,000 deduction per person age 65 and older, in addition to the standard deduction. Keeping taxable income lower through smart planning can also help retirees preserve deductions and avoid higher Medicare IRMAA surcharges.

How do Required Minimum Distributions (RMDs) impact taxes?
Starting at age 73 or 75 (depending on birth year), retirees must withdraw minimum amounts from pre-tax retirement accounts, which increases taxable income. Performing partial Roth conversions or strategic withdrawals before RMD age can help reduce future tax exposure.

What are Qualified Charitable Distributions (QCDs) and how do they work?
QCDs allow individuals age 70½ or older to donate directly from an IRA to a qualified charity, satisfying all or part of their RMD while excluding the amount from taxable income. This strategy helps maximize charitable impact while reducing taxes in retirement.

How to Maximize Social Security Benefits with Smart Claiming and Income Planning

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

For many retirees, Social Security is a cornerstone of their retirement income. But when and how you claim your benefits—and how you plan your income around them—can have a major impact on the total amount you receive over your lifetime. With updated Social Security thresholds, limits, and rules, there are new opportunities to optimize your claiming strategy and coordinate Social Security with your broader financial plan.

In this article, we’ll cover:

• How Social Security benefits are calculated and funded

• Four ways to increase your Social Security benefit amount

• How income and taxes affect your benefits

• The impact of Medicare premiums and income planning

• How delaying Social Security can create opportunities for Roth conversions

• What to know about the earned income penalty if you claim early

• Answers to common Social Security claiming questions

Maximizing Social Security During the Working Years

The foundation for a strong Social Security benefit starts during your working years. Understanding how the system works helps you make informed decisions about your career, income, and retirement planning.

How Social Security Is Funded and Calculated

Social Security is primarily funded through payroll taxes under the Federal Insurance Contributions Act (FICA). In 2025, workers and employers each pay 6.2% of wages (for a total of 12.4%) up to the taxable wage base, which is $176,000 in 2025. Any earnings above that amount are not subject to Social Security tax and do not increase your benefit.

Your benefit is based on your highest 35 years of indexed earnings—meaning each year’s income is adjusted for inflation to reflect its value in today’s dollars. If you worked fewer than 35 years, zeros are included in the calculation, which can significantly reduce your average and therefore your monthly benefit.

Key takeaway: Once your annual income exceeds the taxable wage base, additional earnings don’t raise your future Social Security benefit. However, working longer can still increase your benefit if you replace lower-earning years or zeros in your 35-year average.

Four Ways to Increase Your Social Security Benefits

1. Fill in or Replace Zero Years

If you have fewer than 35 years of work history, each missing year is counted as zero. Even one extra year of income can replace a zero and raise your benefit.

Example: If you worked 32 years and earned $80,000 annually in your final three years, adding those years could significantly boost your benefit calculation.

2. Delay Claiming to Earn Higher Benefits

You can claim Social Security as early as age 62, but doing so permanently reduces your benefit—up to 30% less than your full retirement age (FRA) amount. For those born in 1960 or later, FRA is 67.

If you wait past FRA, your benefit grows by 8% per year up to age 70, plus annual cost-of-living adjustments (COLAs).

Example:

• Claiming at 62: $1,400/month

• Claiming at 67: $2,000/month

• Claiming at 70: $2,480/month

That’s a $1,080 per month difference for waiting between the ages of 62 and 70.

3. Maximize Spousal and Dependent Benefits

Spousal and dependent benefits can be valuable for married couples or retirees with young children.

• Spousal Benefit: A spouse can claim up to 50% of the higher earner’s FRA benefit, provided the higher earner has already filed.

• Divorced Spouse Benefit: You may qualify if the marriage lasted 10 years or longer, and you haven’t remarried prior to age 60.

• Dependent Benefit: Retirees age 62+ with children under 18 may receive additional benefits for dependents.

Planning tip: For individuals who plan to utilize the 50% spousal benefit and/or the dependent benefit, the path to the optimal filing strategy is more complex because the spouse and dependents cannot receive these benefits until that individual has actually turned on their social security benefit, which, in some cases, can favor not waiting until age 70 to file.

4. Understand Survivor Benefits

If one spouse passes away, the surviving spouse receives the higher of the two benefits. This makes it especially beneficial for the higher-earning spouse to delay claiming to age 70, maximizing the survivor benefit and providing long-term income protection.

How Social Security Benefits Are Taxed

Up to 85% of your Social Security benefits may be taxable, depending on your combined income (adjusted gross income + nontaxable interest + half of your Social Security benefits).

• Single filers: Taxes begin at $25,000 of combined income

• Married filing jointly: Taxes begin at $32,000 of combined income

If you don’t need Social Security to cover living expenses right away, delaying benefits can not only increase your future income but may also help manage taxes by controlling your income levels in early retirement.

Medicare Premiums and Income Planning

Once you reach age 65, you’ll typically enroll in Medicare Part B and D, and your premiums are based on your Modified Adjusted Gross Income (MAGI). Higher income means higher premiums under the Income-Related Monthly Adjustment Amount (IRMAA) rules.

Because Social Security benefits count as income for these purposes, timing your claiming strategy can help you manage Medicare costs.

Roth Conversions: Turning Delay into an Opportunity

Delaying Social Security creates a window for Roth conversions—moving money from a traditional IRA to a Roth IRA at potentially lower tax rates before Required Minimum Distributions (RMDs) begin at age 73 or 75.

Benefits of Roth conversions include:

• Paying tax now at potentially lower rates

• Reducing future RMDs

• Potentially reduce future Medicare premiums

• Creating a tax-free income source in retirement

• Leaving tax-free assets to heirs

Coordinating your claiming strategy with Roth conversions can improve long-term tax efficiency and enhance your retirement flexibility.

Claiming Early? Know the Earned Income Penalty

If you claim Social Security before full retirement age and continue to work, your benefits may be temporarily reduced.
In 2025, the earnings limit is $23,400. For every $2 earned over the limit, $1 in benefits is withheld.

In the year you reach FRA, a higher limit applies: $62,160, and only $1 is withheld for every $3 earned above that.
Once you reach full retirement age, the penalty disappears, and your benefit is recalculated to credit any withheld amounts.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQ)

How are Social Security benefits calculated?
Social Security benefits are based on your highest 35 years of indexed earnings, adjusted for inflation. If you worked fewer than 35 years, zeros are included in your calculation, which can reduce your benefit.

What are the main ways to increase your Social Security benefits?
You can boost your benefit by replacing “zero” earning years, delaying your claim up to age 70 for an 8% annual increase past full retirement age, and coordinating spousal or survivor benefits strategically. Working longer and earning more during high-income years can also improve your benefit calculation.

How does delaying Social Security affect taxes and Medicare premiums?
Delaying benefits can help you manage taxable income in early retirement and avoid higher Medicare premiums triggered by the IRMAA income thresholds. This window can also allow for Roth conversions, which reduce future Required Minimum Distributions (RMDs) and create tax-free income in later years.

How are Social Security benefits taxed?
Up to 85% of your benefits may be taxable depending on your combined income (adjusted gross income + nontaxable interest + half of your benefits). Taxes begin at $25,000 for single filers and $32,000 for married couples filing jointly. Managing income sources can help minimize these taxes.

What is the earned income penalty for claiming Social Security early?
If you claim before full retirement age and continue working, benefits are reduced by $1 for every $2 earned above $23,400 in 2025. In the year you reach full retirement age, the limit increases to $62,160, and only $1 is withheld for every $3 earned over that amount. The penalty ends at full retirement age, when your benefit is recalculated.

What are spousal and survivor Social Security benefits?
A spouse can claim up to 50% of the higher earner’s full retirement benefit once that person has filed. If one spouse passes away, the survivor receives the higher of the two benefits. This makes it especially advantageous for the higher earner to delay claiming to age 70 to maximize long-term income protection.

How can Roth conversions complement Social Security planning?
Performing Roth conversions in the years before claiming Social Security or reaching RMD age allows retirees to shift pre-tax funds into tax-free accounts at potentially lower tax rates. This strategy can reduce future taxable income, manage Medicare premiums, and increase retirement flexibility.

“Sell in May and Go Away” is Dead

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

One of the most well-known Wall Street adages is the “Sell in May and go away” strategy. The idea is simple: sell your stock holdings in May, avoid the typically slower summer months, and then re-enter the market in the fall when trading activity and returns supposedly pick back up. On the surface, this strategy sounds appealing—who wouldn’t want to avoid risk and still capture the best gains of the year?

But here’s the problem: if you had followed this strategy over the past six years, you would have missed out on some very strong returns. In fact, staying on the sidelines from June through August would have cost you real money.

In this article, we’ll cover:

• A look at the actual S&P 500 returns from June–August over the past few years

• Why investors would have been “right” only 1 out of 6 times

• The real risk of following catchy headlines instead of hard data.

• Why discipline through volatility has historically paid off.

What the Data Really Says

Below is a breakdown of the S&P 500 Index returns from June through August for each year since 2020.

When we look at the data:

• Five out of six years, the June – August months produced positive returns.

• The average return over this period was 6.91%.

• Investors would have only been correct in sitting out one year (2022), when the S&P fell by –3.37%.

Put simply, investors who followed the Sell In May and Go Away strategy for the past 6 years cost themselves about 7% PER YEAR in investment returns. 

Why the Temptation is Strong

It’s easy to see how investors get drawn into these types of strategies. A headline or article points out that summer months are historically weaker, or that volatility spikes during this period. On paper, it can sound logical: avoid risk, re-enter later, and come out ahead.

But as the table shows, the reality doesn’t line up with the theory. By relying on the “Sell in May” strategy, investors risk leaving money on the table. That’s the danger of market timing—you need to be right not once, but twice (when to sell, and when to buy back in).

Volatility vs. Discipline

There’s no denying that the summer months often bring more volatility to the stock market. Thinner trading volumes and seasonal economic patterns can cause choppier price action. But investors who have had the discipline to ride through those bumps have been rewarded.

The past six years make this clear: while the S&P 500 had its ups and downs from June to August, the overall trend was solidly positive. That’s why sticking to a long-term investment plan often beats trying to time the market.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQs)

What does “Sell in May and go away” mean in investing?
“Sell in May and go away” is a market adage suggesting that investors should sell their stock holdings in May, avoid the summer months when returns are thought to be weaker, and reinvest in the fall. The strategy is based on historical seasonal trends but often oversimplifies how markets actually perform.

Has the “Sell in May” strategy worked in recent years?
Recent data shows that this strategy has largely underperformed. Over the past several years, the S&P 500 has delivered positive returns during the summer months more often than not, meaning investors who exited in May would have missed out on gains.

Why can following seasonal market sayings be risky?
Relying on old adages or headlines instead of data can lead to missed opportunities or poorly timed decisions. Markets are influenced by a range of factors—economic trends, interest rates, and company performance—not just the calendar.

What’s the downside of sitting out of the market during the summer?
Missing even a few strong market days can significantly reduce long-term investment returns. Staying invested allows you to participate in rebounds and compounding growth that can happen unexpectedly throughout the year.

Why is discipline so important for investors?
A disciplined, long-term investment approach helps smooth out volatility and avoid emotional decision-making. Sticking with a consistent strategy based on goals and time horizon has historically produced better outcomes than trying to time the market.

What’s a more effective alternative to timing seasonal trends?
Instead of trying to predict short-term market movements, investors can focus on maintaining a diversified portfolio aligned with their risk tolerance and financial objectives. This approach emphasizes consistency and adaptability rather than reacting to temporary patterns.