Midwestern Millionaires are those who have down-to-earth, deeply rooted midwestern values and have worked hard over 40 years to save for retirement. They’ve mostly made frugal decisions and find themselves needing more help now because of how well they’ve saved.
My firm, Peak Retirement Planning, specializes in helping Midwestern Millionaires all across the U.S. (a book I wrote about them is coming soon!). I hit upon this nickname a few years ago while my team was serving a family who fit the description — and I realized we work with lots of families just like them.
This particular family had saved over $1 million and were nearing retirement. That’s the millionaire part. But the more unique part is the “midwestern” feel they share with others like them, wherever they happen to live. These are good people who have done the “right” things over the years. Now they want to maximize their retirement and live with more purpose.
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We have many clients who can say, “I don’t live in the Midwest, but I am still a Midwestern Millionaire.” It doesn’t have to do with geography. Some of our clients also call themselves “Middle-Class Millionaires” instead, which I also love. These families didn’t make millions of dollars a year; they simply worked hard, made an honest living and sacrificed to be where they are today. Now their net worth ranks in the top 10% of the country, leading to the need for more advanced retirement planning.
Joe has built a comprehensive retirement planning company focused on helping clients grow and preserve their wealth. Under his leadership, a team of experienced financial advisers use tax-efficient strategies, investment management, income planning and proactive health care planning to help their clients feel confident in their financial future — and the legacy they leave behind.
Retirement planning for the Midwestern Millionaire
Our firm follows a process for Midwestern Millionaires we call the Five-Pillar Approach, which includes five key components of retirement planning: taxes, investments, income, health care and estate.
We believe all Midwestern Millionaires should have a plan for each of the five pillars. If they’re working with a team, then we encourage them to ensure their team is a full-service firm that can deliver on all their retirement needs. For example, we would encourage that team to have an in-house CPA and estate planning attorney to ensure all three of a client’s financial professionals are working together. They should also have health insurance and Medicare specialists to help with making well-informed decisions in all areas of retirement. This teamwork-based approach helps ensure that nothing gets missed.
Another quality many Midwestern Millionaires share is that they also seem to hate taxes. (I also wrote a book on this.) They want to pay their fair share but not “tip” Uncle Sam. I’ve never heard them say they want to donate money to the IRS above what they owe in taxes each year. They’re looking for advanced tax strategies to save some of their hard-earned dollars.
They also understand that tax planning is the foundation of a retirement plan, as most Midwestern Millionaires see taxes as their biggest expense in retirement. That’s because of how much they’ve saved in tax-deferred investments (IRAs, 401(k)s, 403(b)s, TSPs, etc.), which they haven’t paid taxes on yet. They’re worried about taking income from their investments and what the tax impact will be. They’re also thinking about making sure their spouse and children are taken care of when they pass and aren’t left with an unnecessary tax burden.
Tax concerns for Midwestern Millionaires
Many Midwestern Millionaires worry about the increased income the IRS says they must take out when they reach age 73 (if you were born before 1960) or 75 (if you were born in 1960 or after). The problem with these required minimum distributions (RMDs) is that they increase your taxable income, and they can grow as you age, since the percentage you’re required to take gets higher as you get older.
Also, if your income is higher in the future, particularly because of RMDs, then you could end up paying more in Medicare premiums when you turn 65.
RMDs could also force up to 85% of your Social Security benefits to be taxed, based on your annual income. We call this phenomenon the Social Security tax torpedo.
On top of all that, Midwestern Millionaires also need to be aware of the widow’s penalty, which hits them more than most because of the amount they have saved in their investments and the eventual impacts from RMDs. When one spouse passes, two things could cause the widow’s penalty:
- One of the Social Security benefits goes away, and the surviving spouse keeps the higher of the two
- The surviving spouse’s tax rate moves from married filing jointly to single, which could lead to them paying nearly double the amount in taxes
Planning strategies for the Midwestern Millionaire
The good news is that there is plenty the Midwestern Millionaire can do to plan for taxes and alleviate their worries — especially if they choose a team with the right expertise, tools and resources to help them meet their goals. Here are just a few strategies to consider to help reduce RMDs and minimize other taxes in retirement:
1. Consider a Roth conversion
One of the most-used tax strategies we see for the Midwestern Millionaire, a Roth conversion allows individuals to shift money from tax-deferred investments to a Roth, where their money can grow (and be distributed later) tax-free. Now is a good time to look at a Roth conversion, since taxes are expected to be higher in the future as we are experiencing some of the lowest tax brackets in history. Ensure you or your team do a detailed analysis to decide if you should do this, but also to decide how much to optimize the amount you convert.
2. Look at opportunities for charitable giving
If you want to give back, you can consider strategies such as qualified charitable distributions (QCDs) or donor-advised funds (DAFs). There are many other more advanced charitable strategies to consider, but DAFs and QCDs are some of the most popular.
3. Strategize income distributions
We often get questions like, “Which accounts should I take money from in retirement to pay the least amount in taxes?” Or, “Should I take income from my Roth IRA or traditional IRA?” People might also ask if they should take money from a brokerage account and pay capital gains taxes or how their Social Security income will affect their taxes. In this case, your adviser team would prepare an income plan to make sure you are strategically taking money from your retirement accounts to minimize your taxes. (For more on this, check out the Kiplinger.com article In What Order Should You Tap Your Retirement Funds?)
4. Decide what to do with pension options
Some Midwestern Millionaires have a pension, which is also taxable income and can result in higher Medicare premiums or Social Security tax. You’ll want to look at how a pension will impact your annual taxes in retirement, plus whether you should take a lump-sum payment or opt for payments over time. Also, will your pension cover your spouse if you die before they do?
We often say Midwestern Millionaires are the best savers and the worst spenders. We often see these individuals or families live frugally throughout retirement because they worry about running out of money. This is a real fear for retirees, but it is possible to be able to splurge and still have enough for retirement. It all comes down to having a plan — and deciding what is most important to you in your later years.
None of us can take our money with us when we’re gone; we can either spend it, give it to our heirs or donate to a charity. It’s important to put together a plan — or work on a plan with a trusted team of financial professionals — that will allow you to see the fruits of your labor and enjoy retirement. It’s a paradigm shift for those who have had a “saver’s mindset” for so long, but when done correctly, it can lead to living the retirement of your dreams.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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