Small Business Retirement Blog

The 'Rich Recession' Trap: Why High Earners Are Abandoning Traditional Retirement Advice 🛡️

𝗧𝗵𝗲 '𝗥𝗶𝗰𝗵 𝗥𝗲𝗰𝗲𝘀𝘀𝗶𝗼𝗻' 𝗧𝗿𝗮𝗽: 𝗪𝗵𝘆 𝗛𝗶𝗴𝗵 𝗘𝗮𝗿𝗻𝗲𝗿𝘀 𝗔𝗿𝗲 𝗔𝗯𝗮𝗻𝗱𝗼𝗻𝗶𝗻𝗴 𝗧𝗿𝗮𝗱𝗶𝘁𝗶𝗼𝗻𝗮𝗹 𝗥𝗲𝘁𝗶𝗿𝗲𝗺𝗲𝗻𝘁 𝗔𝗱𝘃𝗶𝗰𝗲 🛡️ Retirement Lifestyle by Design℠ Series High-income earners face a unique threat when economic downturns strike right before retirement. It is not just about market losses; it is about the devastating combination of forced taxable distributions and sequence of returns risk. 𝗦𝗮𝗺𝗽𝗹𝗲 𝗦𝗰𝗲𝗻𝗮𝗿𝗶𝗼: 𝗦𝗮𝗿𝗮𝗵 𝗖𝗵𝗲𝗻 (𝟱𝟮) — 𝗧𝗵𝗲 𝗧𝗲𝗰𝗵 𝗘𝗾𝘂𝗶𝘁𝘆 𝗠𝗶𝗹𝗹𝗶𝗼𝗻𝗮𝗶𝗿𝗲 Profession: VP of Engineering at a publicly traded SaaS company Income: $600K base + $600K+ in RSUs and bonus Assets: 401(k) maxed annually ($23,000 + $7,500 catch-up); Deferred compensation plan (NQDC, $1.5M); Roth IRA (backdoor contributions, $250K); Taxable brokerage account ($2M); Company RSUs (vesting schedule, $3M+ unvested); Employer-provided term life insurance Tax Challenges: RMDs at age 73 will push her into the highest tax bracket (37%); Deferred compensation distributions taxed as ordinary income; IRMAA Medicare surcharges if MAGI stays high in retirement; Up to 85% of Social Security taxable at high MAGI levels; No tax-free retirement income source IRS Regulations: IRC Section 401(a)(9) — RMD rules — IUL and non-qualified FIA have no RMDs; IRC Section 1411 — 3.8% NIIT — IUL cash value growth and policy loans are not subject to NIIT; IRMAA (IRC Section 1631) — Tax-free IUL income doesn't increase MAGI Retirement Challenge: Has maximized every traditional retirement vehicle but still faces RMDs at 73. Needs tax-free income in retirement to avoid IRMAA Medicare surcharges and Social Security taxation. Wants to diversify away from tech-heavy market exposure. Lifestyle Vision: Fund a STEM scholarship for women; Buy a vineyard in Napa; Sit on startup advisory boards; Travel extensively How PrimusMax Income Solves It: The PrimusMax Income℠ strategy becomes Sarah's tax-free bucket. An IUL policy provides tax-free accumulation and tax-free retirement income via policy loans. An FIA provides guaranteed income that doesn't depend on market performance. High-Level Steps: Fund an IUL policy now (age 52); Structure the IUL to pass the 7-pay test; Allocate a portion of after-tax RSU income to an FIA with a guaranteed lifetime income rider; Plan to draw tax-free IUL policy loans first in retirement; Coordinate FIA and IUL income with deferred comp distributions; Use Roth conversions in lower-income years. Signature Quote: "I've engineered the perfect software systems. Now I need to engineer a retirement the IRS can't hack." 𝗞𝗲𝘆 𝗧𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀: • Traditional retirement accounts expose high earners to massive tax liabilities during market downturns. • Sequence of returns risk can decimate a portfolio if you are forced to sell assets at a loss to meet living expenses or RMDs. • The PrimusMax Income℠ strategy uses a dual-engine approach (IUL + FIA) to provide guaranteed, tax-free income. • Shielding your income from IRMAA surcharges and the 3.8% NIIT is crucial for preserving wealth.