What does it cost to retire in the state you want to stay in?
Bob and Lisa finished working with about $3 million invested, $2 million of it in a traditional IRA and $1 million in a taxable brokerage account, plus a house with no mortgage on it. They spend roughly $150,000 a year. By most measures they had finished planning before they arrived, and the portfolio question had already been answered.
What had not been answered was the tax question. Nearly two thirds of their money sat in an account where every dollar comes out as ordinary income, in a state that taxes it at full rates, and they intended to leave whatever they did not spend to two adult children who are already earning well. Across a thirty-year retirement, the sequencing of that matters more than the allocation.
The question was never whether the money would last. It was how much of it would reach the people they intended it for.
Analysis
What we looked at
When to take Social Security
Claiming early would reduce what they needed to withdraw in the first years of retirement, which sounds helpful and works against everything else. Delaying meant drawing more from the IRA in the meantime, which is not a problem when the goal is to reduce that balance before required distributions begin. We modeled the claiming ages against the conversion plan rather than on their own.
How much to convert, and when
The years between retiring and the start of required distributions were their lowest-income years, and there were a limited number of them. We looked at converting in each of those years up to a defined income target rather than converting a fixed amount, so that the tax paid stayed inside a bracket they had chosen rather than one the account balance chose for them later.
Whether to stay in California
They wanted to stay, and they were right to ask what it cost. We ran the plan twice, once in California and once in a state with no income tax, so the difference was a number rather than a feeling. The point was not to talk them into moving. It was to let them decide with the figure in front of them, and to see how much of the gap conversions could close while staying.
What the children actually inherit
A traditional IRA left to adult children in their peak earning years arrives as ordinary income on a compressed timetable. The same money in a Roth arrives without tax. Appreciated stock in a taxable account generally receives a new basis at death. Sorting which asset is intended for whom changes what the estate is worth to the people receiving it, without changing what Bob and Lisa spend.
The examples shown are illustrative and do not represent any actual client. The situations are constructed, and the figures are rounded and chosen for illustration. They are not a projection, a recommendation, or an indication of results any client did receive or should expect to receive. Individual circumstances vary, tax rules change, and the analysis appropriate to one situation will not apply to another. Financial North Partners and NewEdge Advisors do not provide tax, legal, or accounting advice. You should consult your own tax, legal, and accounting professionals before making decisions based on the strategies discussed.