Retirement Income Planning for Chicago Near-Retirees

What actually changes

For thirty or forty years the question was how much to put in and how it was invested. Both have a wide tolerance for being roughly right. A contribution made in March instead of January, or an allocation that is five points off, does not change the outcome much across decades.

Inside about two years of a retirement date, that tolerance narrows sharply, for two reasons. The first is that several of the decisions are one-way. A Social Security claim made early is permanent. A pension election, once made, is generally locked. A Roth conversion cannot be reversed. The second is that the decisions stop being independent of one another.

That second point is the one that gets missed. Every dollar drawn from a pre-tax account is ordinary income, and taxable income is the input that determines the tax on Social Security benefits, eligibility for marketplace premium assistance before 65, and the Medicare premium tier two years later. Change one and you have changed the others whether you meant to or not.

The order of withdrawals

Most households arrive at retirement with money in three tax categories: taxable brokerage accounts, tax-deferred accounts such as a traditional IRA or 401(k), and tax-free Roth accounts. Withdrawal sequencing is the question of which one to draw from, in which years, and in what proportion.

There is a conventional answer, which is to spend taxable money first, then tax-deferred, then Roth. It is a reasonable default and it is frequently wrong for a specific household. Drawing taxable money exclusively in the early years can leave a large pre-tax balance intact, which then produces required minimum distributions that land in a higher bracket than the household ever occupied while working. Filling the lower part of a bracket with deliberate pre-tax withdrawals or conversions during low-income years is often the better path, but that depends entirely on the balances involved and the income expected later.

Roth conversion analysis belongs in the same conversation, and it is work done in coordination with your CPA rather than instead of them. A conversion creates taxable income in the year it happens and cannot be undone, so the modeling belongs before the transaction. Consult a qualified tax professional before acting on any of it.

Social Security timing

Under current rules, claiming before full retirement age permanently reduces the monthly benefit, and delaying past full retirement age increases it by a set percentage for each year of delay until age 70. Those are statutory mechanics rather than a forecast, and they apply regardless of what markets do.

What the mechanics do not tell you is which choice fits. The analysis depends on whether you are still working, on the tax character of the assets you would spend in the meantime, on health and family longevity, and for married couples on the survivor benefit, which is frequently the largest single factor and the one most often overlooked. The higher earner's claiming decision sets the floor under what the surviving spouse receives for the rest of their life.

A breakeven calculation is a starting point rather than an answer, because it treats the decision as a bet on lifespan and ignores the interaction with taxes and the survivor benefit. Ask to see the claiming decision modeled inside the full income plan rather than on its own.

Coverage before Medicare

If the retirement date lands before 65 there is a gap to cross. The usual routes are employer continuation coverage for a limited period, an individual marketplace plan, a retiree health benefit where an employer still offers one, or coverage through a spouse who is still working.

What makes this a planning question rather than an administrative one is that marketplace premium assistance is calculated from income rather than from assets. A household with substantial savings may still qualify depending on the taxable income it reports. That puts the coverage decision and the withdrawal decision on the same page: a larger pre-tax withdrawal in a bridge year can raise income enough to change what the household pays for health insurance that year.

What Illinois adds

Illinois treats retirement income unusually well. The state does not tax Social Security benefits, and distributions from IRAs, 401(k) plans, and most qualified pensions are also excluded from Illinois income tax. For a household comparing a retirement in Palos Heights against one in a neighbouring state, that exclusion is a material and durable difference rather than a rounding item.

Property tax runs the other way. Cook County property tax bills are among the higher ones in the country, and for a retiree with a paid-off house the tax bill can become the largest fixed annual cost in the plan. It is worth pulling your own most recent bill rather than working from a county average, and worth checking whether you are receiving the exemptions you qualify for, including the senior exemption and the senior assessment freeze where income limits are met.

Estate tax is the third Illinois-specific item. Illinois levies its own estate tax with an exemption far below the federal one, and the Illinois figure is not indexed for inflation. A long-held home in the south or southwest suburbs, combined with retirement accounts and life insurance, can carry an estate past the state threshold while remaining well clear of the federal one. This is a question for an estate attorney, and it is one a retirement income plan should surface rather than leave to be discovered later.

How practices are structured

Rather than compare named firms, it is more useful to compare structures, because the structure tells you what to expect and who you will actually be working with. Practices serving Chicago-area near-retirees generally fall into one of four shapes.

This describes common structures rather than ranking them. Each can be delivered well or poorly, and the right fit depends on how complex your situation is and how much contact you want.

Evaluating a planner

Start with what is checkable. Look the individual up through FINRA BrokerCheck, which shows registration history and any disclosures. Confirm any professional designation directly with the organization that issues it rather than taking it from a website. Ask for the ADV Part 2A brochure, which sets out advisory services, fees, and conflicts of interest in plain language.

Then get precise about compensation, because the labels are used loosely. Some professionals are registered representatives who receive transaction-based compensation. Some are investment adviser representatives who receive fees. Many, including this practice, are both, and the accurate description in that case is fee-based rather than fee-only. That structure is disclosed rather than hidden, and the useful thing is to ask for it itemized by service line so you can state in a sentence how the firm is paid for each part of your plan.

Then ask the operational questions.

• Will I receive a written income plan, and can I see the structure of one with the client details removed?
• How do you decide the order of withdrawals, and what changes that order when markets move against me early?
• How do you analyze Social Security claiming for a couple with different earnings records, including the survivor benefit?
• How do you handle coverage between my retirement date and Medicare?
• How and when do you coordinate with my CPA and my estate attorney?
• Who will I actually be talking to, and how often?
• How are you compensated on each service line?

Two things are worth walking away from. One is a specific product recommended before a written plan exists, particularly one with a surrender period. The other is a refusal to put compensation in writing when asked plainly.

This practice is founder-led and based in Palos Heights, and Richard Casolari has spent roughly fifty years in financial services. Clients work with him directly. The work coordinates retirement income planning, investment management, tax-aware withdrawal sequencing in coordination with your CPA, and protection planning through licensed affiliates, into one written plan rather than separate recommendations. Fees, charges and expenses are detailed in the ADV Part 2A.