What You Need to Know About Financial Advisor "Free" Dinners

I get a lot of mailers from financial advisors, and they generally fall into one of two categories: either a free meal or an educational seminar. I’ve noticed a trend in the one’s offering a free meal (didn’t a wise man once say there’s no such thing as a free lunch?) – they use a scare tactic to try a grab an audience, just in case the free food isn’t enough. And what is scarier to a retiree than “loosing” their Social Security?

A case in point is the latest mailer I got earlier this month from a firm called Peace of Mind Wealth Management. I’m only going to focus on one area of the flyer – but doom and gloom features prominently:

THE WARNING SIGNS OF AN ECONOMIC RECESSION ARE CREATING AN UNEASY FINANCIAL ENVIRONMENT

Will Social Security be there for me?

Rising Inflation

As the old commercial said, "Calgon take me away."

I’d like to dig a little deeper on the bullet point that states “How withdrawals from IRA’s could cause you to lose up to one-third of your Social Security.” That sounds terrifying, but what is the reality?

If one’s income exceeds certain thresholds, 85% of Social Security benefits are subject to income tax. But how does one “loose” 33% of their Social Security? In short, you’d have to have $1 million of yearly income to have 30% of your Social Security income eroded by income tax.   

Perhaps looking at a more common example helps. I work with a retired couple (age 75 & 73) who I’ll call the Bakers (not their real name). For 2023 their income consists of $50,000 of Social Security and $100,000 of IRA distributions and they take the standard deduction. In this scenario, the tax on their Social Security is ~$5,900. I calculate this using their effective tax rate (total tax / taxable income ) of 14% x their taxable Social Security of $42,500.

Rather than scare people with misinformation, we prefer to educate you on how effective tax planning can help minimize lifetime taxes at the lowest rate possible.