Living off of your investments is no easy task especially if you have not yet applied for Social Security. I have 3 accounts that generate monthly income. My spending account generates $850. My brokerage account produces $150, and my IRA produces $2000, for a total of $3000 each month. I only pay income tax on the $1000 that comes from the spending and brokerage accounts. I was taking $300 each month from my IRA but decided to stop doing that for now. I realized that it makes more sense to let the IRA grow tax free for as long as possible. If I had put all of my money into the IRA, I would be forced to start taking money out when I turned 59 1/2. Finance experts recommend using taxable accounts first, before you withdraw from an IRA.
There are other financial benefits. Even though my annual income is $36,000 from all accounts, I only have to pay income tax on $12,000. Since the standard deduction is $15,000 in 2025, my federal tax will be zero. The standard deduction increases every year, so I haven’t had to pay federal income tax since I was laid off in 2019. State income tax is a different story. Somehow the State tax return always says that I owe 2 or 3 hundred dollars. But having a low annual income means that I get most of my property taxes refunded and low-cost healthcare insurance. Qualifying for State benefits makes it possible to live off investment income, at least until age 65.
At age 65, I will have to apply for Medicare. This means that I will have to pay a monthly Medicare premium. For 2025, the part-B premium is $185. By the time I turn 65, the Medicare premium could be over $200 per month. That adds up to $2400 per year. In order to pay the monthly Medicare premium, I will have to apply for Social Security two years before my full retirement age. My monthly SS benefit as of 2024 would be $2464. That adds up to $29,568 per year. Add my current taxable income to that and my annual income would be $42,000. Sounds good, but I’ll be getting a smaller property tax refund and will have higher healthcare expenses.
For those who reach age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2033, the RMD age would be 73. For those who reach age 74 after Dec. 31, 2032, the RMD age would be 75. This means that I won’t be required to take distributions from my IRA until age 75. These numbers seem to change often. The RMD age increased in the SECURE Act 2.0 to give individuals more time to grow their retirement savings before they are required to start taking distributions. Seems counter intuitive, but maybe lawmakers figured it would generate more tax revenue if they let our retirement accounts grow a bit longer.