December 2, 2025 • 9 mins
"Hey Mike, once you buy an annuity, is it better to take income when you retire, or wait so the income amount gets bigger?"
Discover when it may make sense to start your lifetime income when you retire, and when it may make sense to delay it.
Text your questions to 913-363-1234.
Request Your Wealth Analysis by going to www.retireontime.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mike (00:05):
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice thatyou've heard hundreds of times.
Instead, we're gonna get intothe nitty gritty. As always,
text your questions to (913)363-1234. And remember, this is
just a show, not investmentadvice.
Do your research. David, what dowe got today?
David (00:26):
Hey, Mike. Once you buy an annuity, is it better to take
it when you retire or wait sothe income amount gets bigger?
Mike (00:35):
Yeah. That's a very thoughtful question. So very
analytical person. And thisisn't just with annuities. And
don't turn on that annuity, bythe way, whoever submits this
question.
Mhmm. There's layers to thisquestion that need to be
discussed. But first off, let'slook at this from a higher
level. What are they asking?Well, basically, whether it's an
annuity, whether it's yourSocial Security, or some
(00:55):
pensions, if you start thepayout or the payments later,
it's typically a higher dollaramount.
And so some people might say,well, I'm going to live a longer
time. They've got longevity intheir life. They've got reason
to believe that a higher payoutwould do better for them, and so
they kind of delay thesepayments. Other people might
say, well, I can reinvest themoney, so I might as well take
(01:17):
as much as I can out now. Somepeople say, well, I don't have
longevity.
I do want that guaranteedincome, and so they might
structure it that way. Buthere's what gets me. We don't
know what the future has instore, even your own health.
I've known many healthy peoplethat just out of the blue died.
(01:38):
So make sure that you're nottrying to play God with your
longevity, but acknowledge bothsides of it.
Humans have an adverse reactionto loss, and we distort loss
over gain. We are more likely towant to avoid pain than to gain
something. Mhmm. So justunderstand there's a distorted
(02:00):
position that all humansinherently have. Now with that
said, where's the break even?
If you were to delay one, two,three years, how much money
would you not get, and then whenwould that be recouped? That's
the simple calculation. And youcould just put in some basic
numbers and ask an AI to do thatcalculation for you Mhmm. And
(02:20):
it'll be done in seconds. Nowhere's the other part.
What are your other assetsdoing?
David (02:27):
Okay.
Mike (02:28):
So for example, if you turn on Social Security, a
pension, or an annuity, assumingit's was funded by an IRA, and
usually they are, all of thoseare taxed as ordinary income.
What if you have assets in abrokerage account? What if you
have a highly appreciated stock?Let's say you worked for
(02:50):
Microsoft for most of your life,and you've got 20% of your
portfolio in Microsoft. Well,that's a risky over allocated
position.
Uh-huh. Microsoft's a greatcompany. I don't think they're
going anytime soon, but by wayof example, maybe all of 20%
shouldn't be in one company. Sowhat if you delayed one or two
(03:13):
years from your payments so thatyou could take your Microsoft
stock and sell it down underlong term capital gains?
David (03:23):
Okay.
Mike (03:23):
Many people don't realize this. Long term capital gains
around the first $96,000 ofgains is taxed at 0%. So if the
first year or two, you're notpaying taxes as you're lowering
your exposure to that position,that's a pretty good deal. But
(03:46):
it only works well if you getrid of the ordinary income or
delay the ordinary income untila later time. Because if you
take on, let's say, a $50,000pension or your 40,000 is a
social security, whatever it is,that eats into your 0% long term
capital gains bracket.
Because long term capital gainsstarts where ordinary income
ends.
David (04:07):
Oh, yes.
Mike (04:08):
Now think about it this way. So let's say you're going
to take out a 100,000 of gainsfrom a specific stock.
David (04:15):
Okay. K. I've held I've held it for a long time. This is
a long term.
Mike (04:18):
I've held it for a long time. So you sell a 100,000 of
gains, not including the basis,so you're gonna get a 150,000,
whatever the the total amountis.
David (04:25):
Okay.
Mike (04:26):
That 100,000 starts where the ordinary income ends. So
let's say you've also got 40,000of income. Mhmm. That means 40
thousand's ordinary income. Soyou've got 60 of the 100,000
that's tax free, roughlyspeaking, and then the 40,000
that crossed the zero percenttax bracket threshold, that's
taxed at 15%.
David (04:46):
Okay.
Mike (04:47):
Why are you paying taxes on things that you you could
just delay some of these incomestreams. Yeah. Take more from
your assets, get your portfoliomore properly aligned, get a
higher taxable income or not.Let me say it this way. If you
take income from one place, youleave income resources from
another place.
So your Social Security orpension, you could take those on
(05:08):
at a later date. It's a higheramount, but you were able to
take more from your assets taxefficiently. Sometimes that
makes sense. Sometimes itdoesn't. So when people only
look at a breakeven analysis,they're missing other potential
strategies that could get in theway.
Now let's say that someone waslooking at this from an IRA
(05:30):
standpoint. So you've got yourIRAs pretax. You're gonna pay
tax on the distributions. Mhmm.And you've got this brokerage
account with one stock that's alot of your money.
Well, you might think, well, Ineed to get my IRA to Roth
conversions done. Well, what ifyou just delayed it two years,
took income tax free? You havegot more money in your IRA
(05:53):
that's able to grow at a greaterrate, and then you're still able
to coordinate your IRA to Rothconversions and your income with
the standard deduction with allthese other I mean, there's
there's just things to be awareof. Mhmm. Now I've
oversimplified the taxcalculation because you do have
the standard deduction.
You do have your modifiedadjusted gross income, which
matters. And if you're 65 orolder, you also have the
(06:14):
standard deduction, which couldmatter. These are thousands of
dollars here and thousands ofdollars there that account for a
larger or smaller tax bill.Right. So the question is great
in that, yes, it may make sensebased on your expected longevity
to maybe wait a day or two, lookat the breakeven.
(06:35):
But also look at your entireportfolio, and are there other
tax strategies that you want toimplement that may get in the
way of you turning on yourincome?
David (06:43):
Because you might have all these different income
potential income sources thatare all taxed differently. And
so what combination can we findthe most tax efficient? Yep.
Just be thoughtful about it.
Mike (06:57):
Lifetime income is not a very flexible income source. So
what do you do? Yeah. Well, I'lltell you what you do. Grit your
David (07:06):
teeth and just pay the taxes.
Mike (07:08):
No. You do planning. Okay. Look at the details. The details
matter.
Yeah. I mean, I guess, I'malmost hesitant to even say
this, maybe you could take yourannuity and say, hey. We don't
want distributions. Maybe theannuity company will negotiate
and say, no. Just put the fundsinto your IRA, and maybe you
could like break it up a year.
I don't even know if that'spossible, and if the insurance
(07:29):
company would even be willing todo something like that. Right.
So don't put yourself into aposition where you're saying,
well, I wish I would have, andthen fill in the blank. Be
proactive about not just when toturn on income, not when to
coordinate the income sources,but look at the tax consequences
as well. Because if you'repaying $10.20, $30,000 less in
(07:52):
taxes in one year, thatcompounds over time.
Yes. That's more money, moredollars in your accounts. And if
you have more money in youraccounts, then they have a
better chance of growth. So bemindful of the holistic side or
the more comprehensive side ofyour planning and strategies
that could be done. Remember,you don't win by buying products
(08:14):
and holding them and justforgetting about it.
You win by strategies, andstrategies require your ability
to be dynamic and adjust alongthe way. That's all the time
we've got for the show today. Ifyou enjoyed the show, consider
subscribing to it wherever youget your podcasts. Just search
for how to retire on time.Discover if your portfolio is
(08:34):
built to weather flat marketcycles or if you're missing tax
minimization opportunities thatyou may not even know exist.
Explore strategies that may beable to help you lower your
overall risk while potentiallyincreasing your overall growth
and lifestyle flexibility. Thisis not your ordinary financial
analysis. Learn more about YourWealth Analysis and what it
(08:55):
could do for you regardless ofyour age, asset, or target
retirement date, go towww.yourwealthanalysis.com today
to learn more and get started.
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice thatyou've heard hundreds of times.
Instead, we're gonna get intothe nitty gritty. As always,
text your questions to (913)363-1234. And remember, this is
just a show, not investmentadvice.
Do your research. David, what dowe got today?
David (00:26):
Hey, Mike. Once you buy an annuity, is it better to take
it when you retire or wait sothe income amount gets bigger?
Mike (00:35):
Yeah. That's a very thoughtful question. So very
analytical person. And thisisn't just with annuities. And
don't turn on that annuity, bythe way, whoever submits this
question.
Mhmm. There's layers to thisquestion that need to be
discussed. But first off, let'slook at this from a higher
level. What are they asking?Well, basically, whether it's an
annuity, whether it's yourSocial Security, or some
(00:55):
pensions, if you start thepayout or the payments later,
it's typically a higher dollaramount.
And so some people might say,well, I'm going to live a longer
time. They've got longevity intheir life. They've got reason
to believe that a higher payoutwould do better for them, and so
they kind of delay thesepayments. Other people might
say, well, I can reinvest themoney, so I might as well take
(01:17):
as much as I can out now. Somepeople say, well, I don't have
longevity.
I do want that guaranteedincome, and so they might
structure it that way. Buthere's what gets me. We don't
know what the future has instore, even your own health.
I've known many healthy peoplethat just out of the blue died.
(01:38):
So make sure that you're nottrying to play God with your
longevity, but acknowledge bothsides of it.
Humans have an adverse reactionto loss, and we distort loss
over gain. We are more likely towant to avoid pain than to gain
something. Mhmm. So justunderstand there's a distorted
(02:00):
position that all humansinherently have. Now with that
said, where's the break even?
If you were to delay one, two,three years, how much money
would you not get, and then whenwould that be recouped? That's
the simple calculation. And youcould just put in some basic
numbers and ask an AI to do thatcalculation for you Mhmm. And
(02:20):
it'll be done in seconds. Nowhere's the other part.
What are your other assetsdoing?
David (02:27):
Okay.
Mike (02:28):
So for example, if you turn on Social Security, a
pension, or an annuity, assumingit's was funded by an IRA, and
usually they are, all of thoseare taxed as ordinary income.
What if you have assets in abrokerage account? What if you
have a highly appreciated stock?Let's say you worked for
(02:50):
Microsoft for most of your life,and you've got 20% of your
portfolio in Microsoft. Well,that's a risky over allocated
position.
Uh-huh. Microsoft's a greatcompany. I don't think they're
going anytime soon, but by wayof example, maybe all of 20%
shouldn't be in one company. Sowhat if you delayed one or two
(03:13):
years from your payments so thatyou could take your Microsoft
stock and sell it down underlong term capital gains?
David (03:23):
Okay.
Mike (03:23):
Many people don't realize this. Long term capital gains
around the first $96,000 ofgains is taxed at 0%. So if the
first year or two, you're notpaying taxes as you're lowering
your exposure to that position,that's a pretty good deal. But
(03:46):
it only works well if you getrid of the ordinary income or
delay the ordinary income untila later time. Because if you
take on, let's say, a $50,000pension or your 40,000 is a
social security, whatever it is,that eats into your 0% long term
capital gains bracket.
Because long term capital gainsstarts where ordinary income
ends.
David (04:07):
Oh, yes.
Mike (04:08):
Now think about it this way. So let's say you're going
to take out a 100,000 of gainsfrom a specific stock.
David (04:15):
Okay. K. I've held I've held it for a long time. This is
a long term.
Mike (04:18):
I've held it for a long time. So you sell a 100,000 of
gains, not including the basis,so you're gonna get a 150,000,
whatever the the total amountis.
David (04:25):
Okay.
Mike (04:26):
That 100,000 starts where the ordinary income ends. So
let's say you've also got 40,000of income. Mhmm. That means 40
thousand's ordinary income. Soyou've got 60 of the 100,000
that's tax free, roughlyspeaking, and then the 40,000
that crossed the zero percenttax bracket threshold, that's
taxed at 15%.
David (04:46):
Okay.
Mike (04:47):
Why are you paying taxes on things that you you could
just delay some of these incomestreams. Yeah. Take more from
your assets, get your portfoliomore properly aligned, get a
higher taxable income or not.Let me say it this way. If you
take income from one place, youleave income resources from
another place.
So your Social Security orpension, you could take those on
(05:08):
at a later date. It's a higheramount, but you were able to
take more from your assets taxefficiently. Sometimes that
makes sense. Sometimes itdoesn't. So when people only
look at a breakeven analysis,they're missing other potential
strategies that could get in theway.
Now let's say that someone waslooking at this from an IRA
(05:30):
standpoint. So you've got yourIRAs pretax. You're gonna pay
tax on the distributions. Mhmm.And you've got this brokerage
account with one stock that's alot of your money.
Well, you might think, well, Ineed to get my IRA to Roth
conversions done. Well, what ifyou just delayed it two years,
took income tax free? You havegot more money in your IRA
(05:53):
that's able to grow at a greaterrate, and then you're still able
to coordinate your IRA to Rothconversions and your income with
the standard deduction with allthese other I mean, there's
there's just things to be awareof. Mhmm. Now I've
oversimplified the taxcalculation because you do have
the standard deduction.
You do have your modifiedadjusted gross income, which
matters. And if you're 65 orolder, you also have the
(06:14):
standard deduction, which couldmatter. These are thousands of
dollars here and thousands ofdollars there that account for a
larger or smaller tax bill.Right. So the question is great
in that, yes, it may make sensebased on your expected longevity
to maybe wait a day or two, lookat the breakeven.
(06:35):
But also look at your entireportfolio, and are there other
tax strategies that you want toimplement that may get in the
way of you turning on yourincome?
David (06:43):
Because you might have all these different income
potential income sources thatare all taxed differently. And
so what combination can we findthe most tax efficient? Yep.
Just be thoughtful about it.
Mike (06:57):
Lifetime income is not a very flexible income source. So
what do you do? Yeah. Well, I'lltell you what you do. Grit your
David (07:06):
teeth and just pay the taxes.
Mike (07:08):
No. You do planning. Okay. Look at the details. The details
matter.
Yeah. I mean, I guess, I'malmost hesitant to even say
this, maybe you could take yourannuity and say, hey. We don't
want distributions. Maybe theannuity company will negotiate
and say, no. Just put the fundsinto your IRA, and maybe you
could like break it up a year.
I don't even know if that'spossible, and if the insurance
(07:29):
company would even be willing todo something like that. Right.
So don't put yourself into aposition where you're saying,
well, I wish I would have, andthen fill in the blank. Be
proactive about not just when toturn on income, not when to
coordinate the income sources,but look at the tax consequences
as well. Because if you'repaying $10.20, $30,000 less in
(07:52):
taxes in one year, thatcompounds over time.
Yes. That's more money, moredollars in your accounts. And if
you have more money in youraccounts, then they have a
better chance of growth. So bemindful of the holistic side or
the more comprehensive side ofyour planning and strategies
that could be done. Remember,you don't win by buying products
(08:14):
and holding them and justforgetting about it.
You win by strategies, andstrategies require your ability
to be dynamic and adjust alongthe way. That's all the time
we've got for the show today. Ifyou enjoyed the show, consider
subscribing to it wherever youget your podcasts. Just search
for how to retire on time.Discover if your portfolio is
(08:34):
built to weather flat marketcycles or if you're missing tax
minimization opportunities thatyou may not even know exist.
Explore strategies that may beable to help you lower your
overall risk while potentiallyincreasing your overall growth
and lifestyle flexibility. Thisis not your ordinary financial
analysis. Learn more about YourWealth Analysis and what it
(08:55):
could do for you regardless ofyour age, asset, or target
retirement date, go towww.yourwealthanalysis.com today
to learn more and get started.
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