The reason for has to do with the fact that the survivor in a couple gets either his/her own benefit or the spouse’s, whichever is higher. Suppose, for example, the wife’s benefit is $2,600 a month and the husband’s is $2,500. While both are alive, they get $5,100. When one dies , the survivor gets $2,600 and the $2,500 benefit goes away.
By using the strategy in you beat the system. You collect the high earner’s benefit for, in all likelihood, something considerably better than 12 years. The low-earner’s benefit, however, will probably be coming in for less time than the formula assumes, and so it doesn’t pay to wait for it.You might need to draw 3% a year from your portfolio. A mix of stocks and bonds is going to yield only half that.
Some financial planners get this wrong. Their fallacious reasoning goes like this: Stocks you hold in a taxable account benefit from a favorable rate on dividends and long-term gains, while stock profits generated inside an IRA eventually come out as distributions taxed at higher ordinary rates. So you should liquidate the IRA first.
When you interpret the IRA this way, you see that the correct comparison is not between a taxable account taxed at a favorable rate and an IRA taxed at a high rate. The correct comparison is between a taxable account taxed at some rate and an IRA taxed at a 0% rate. Forced to choose, you should preserve the 0% IRA. Cash in the taxable brokerage account.
How much to convert? Not too much. A little at a time—and the time between when you quit your day job and when you start drawing pensions is a particularly good time.5. Don’t withdraw money you don’t need from an IRA.