Delaying Social Security by Tapping into Retirement Accounts: A Strategic Guide to Financial Health
As retirement approaches, many individuals face crucial decisions regarding their Social Security benefits and retirement accounts such as IRAs, 401(k)s, and 403(b)s. One strategy that has gained traction is delaying Social Security benefits while using retirement account withdrawals to cover living expenses. This approach can provide a range of financial advantages, but it also comes with potential drawbacks. Here’s what you need to know about this financial strategy.
Understanding Social Security Benefits
Social Security is a vital source of income for many retirees, designed to replace a percentage of pre-retirement earnings. However, the age at which you claim these benefits can significantly impact the monthly amount you receive. Individuals can start receiving benefits as early as age 62, but delaying benefits until full retirement age (typically 66 to 67) or even until age 70 can increase monthly payments by as much as 8% per year.
The Case for Delaying Social Security
Delaying Social Security benefits can be advantageous for several reasons:
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Increased Monthly Payments: Each year you delay claiming Social Security past your full retirement age results in an increased benefit, enhancing your lifetime income. This is particularly beneficial if you live a long life.
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Longevity Considerations: Many retirees underestimate their life expectancy. If you expect to live into your 80s or 90s, waiting to claim Social Security can result in a substantially higher total lifetime benefit.
- Pension and Investment Support: If you have a pension, investments, or other sources of income, delaying Social Security allows you to withdraw from these funds instead, potentially increasing your overall lifetime income.
Using Retirement Accounts to Bridge the Gap
While delaying Social Security can lead to long-term financial gains, it often necessitates short-term financial adjustments. This is where withdrawals from retirement accounts come in. Here are some key points to consider:
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Tax Implications: Withdrawals from IRAs and 401(k)s are subject to income tax. Before making any withdrawals, it’s essential to understand how they will impact your tax bracket. A strategic withdrawal plan can minimize the tax burden.
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Required Minimum Distributions (RMDs): Keep in mind that once you reach age 73 (as of 2023), you’ll be required to take RMDs from your traditional IRA and 401(k). Delaying Social Security might also lead to higher RMDs, impacting your income and tax situation.
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Investment Impact: Withdrawing funds from retirement accounts means less money remaining to grow tax-deferred. Consider whether your withdrawals will significantly alter your long-term financial plan. Balancing necessary withdrawals against investment growth is crucial.
- Health and Financial Needs: If you face unexpected health issues or financial emergencies, access to your retirement accounts can provide needed liquidity. However, maintain a long-term perspective on your overall retirement strategy.
Strategies for Withdrawals
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Partial Withdrawals: Instead of taking a large lump sum, consider smaller, more frequent withdrawals. This approach can help spread out your income for tax purposes.
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Account Sequencing: Typically, it may make sense to withdraw from taxable accounts first before tapping into tax-deferred accounts. This approach allows your IRAs and 401(k)s to continue growing until required.
- Roth Conversions: If you expect to be in a higher tax bracket later, consider converting a portion of your traditional IRA to a Roth IRA before starting Social Security. This can lessen the impact of RMDs and taxes in the future.
Conclusion
Delaying Social Security while withdrawing from your retirement accounts can be a sound financial strategy, especially if you have the flexibility to cover your expenses during the delay period. Making this choice requires careful planning and consideration of your unique financial situation, including tax implications, investment growth, and personal health.
In this complex financial landscape, seeking guidance from a financial advisor can help tailor a strategy that best fits your retirement goals and needs. By making informed decisions today, you can enhance your financial stability and security for years to come.
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One possible factor is this, most states won’t take part of the community living spouse’s Social Security payment if the other spouse needs Medicaid for nursing home care.
so one thing I don't understand is: let's say social security goes away, are the people who are already receiving benefits grandfathered in? and second, social security is funded by the future working force, we know this is declining. I would love for you to weave into these topics on a future episode 🙂
I took Social Security @63 to avoid using my IRA, i wanted to save my IRA for expense increases plus if i die my IRA will be passed onto my heirs
Yep. That's what I did. The best thing I eved did.
I retired at 65 and started living off IRA. Started converting from the IRA to ROTH. I then filed for social security benefits at 68.5. I'm now at 69.5 years old. My monthly benefits pays all my bills. I don't have to touch my Roth or other investments to live.
You are Wrong because NOT EVERYONE HAS THAT SPENDING GENE!
MANY feel better by always saving gene!!! Wise up
A VERY SLOW video!!!!
Could be 5 minutes tops!
Boring
Be careful people who have pensions. Delaying SS means you'll have higher monthly payments. That's good. However adding high SS payments in your 70+ means you'll end up with pensions PLUS high SS payments PLUS RMDs in your 70+. That will result in HIGH income and push up your IRMAA, resulting in much higher Medicare Part B monthly premiums (not to mention taxes). Watch out …
Thanks for the discussion!
I am looking into cashing in some poor performing investments to delay my SS for one year past my retirement. That way, I get more from social security, but I am not depleting my investments or 401K. It doesn't have to be and 'all or nothing' decision. Also, if I die early, my spouse will still get a higher SS payout as a survivor. Fortunately, I do have a small pension that will help me out in the 'year of waiting' post-retirement.
Your kids can inherit your 401k and IRA when you die. They can’t inherit your SS.
Sir good morning My husband passed away at the age of 75 at that time I was 70 because I was born 1952 I was working at Walmart I stopped working when he passed away Am I entitled to my own retirement pay because I worked for 6 yrs the amount I am receiving now is only my spousal support which is one thousand 80 am I entitled to my own retirement pay.
Why do financial experts don't get to the point
No male in our family ever lived past age 83
Age 67 and still working with a high salary. Will retire soon and drawdown IRA to delay SS until age 68 or 69.
I'm delaying and it's because it's the best decision for my wife and I when it comes to our situation. I retired on my 65th birthday. I didn't have nearly enough saved in my 401k that could supplement taking SS every month. I would have needed a BARE MINIMUM of $350,000 in my 401k, which I didn't. But delaying til 70 and using my 401k to live on would get me enough SS every month to pay all my bills, do things, go places and still be able to save money. When I start taking my SS at 70 my monthly income will almost double from what I am currently spending to delay. Gaining 6% on my SS every year until my FRA (66&8) is a decent "investment". After that I'll earn 8% every year on my SS benefit by delaying and that's a very good return. And with SS being our only source of income, our Federal taxes will be virtually zero – as in NOTHING.
I work in Hospice for a long time, what most people don’t realized is even if your kids are that good they tend to want you to die faster if you have large amounts of money, i have seen it so many many times, believe me it happens a lot, use your money well and focus on your health, if you have a lot of money it will cloud your kid’s minds because there’s money involved, so don’t stress yourself, enjoy your money and enjoy life.
Finally the first video that alligns to my financial plan/beliefs, yes pulling ss at 62 is good if you don’t other investments, and people don’t realize the tax implications, also it’s more healthy in your mind set because if you delay your ss at 72, your mind is telling you that you will live longer and most likely you get motivated to get more healthy and live longer.Thank you thank you, it is the tax that completes the whole picture of delaying it.
Just got laid off at 60 due to company reorg. Feel like I want to retire now. Thinking I will take out from 401k. Wondering when is best time to file for SS. Came across your channel and video where you spoke of a report you run. I’d be interested in said report. Thanks for the channel as it’s helping me to understand things.
Later when the Govt. "reclaims" all of your money to pay for your medical care.
Take your Social Security as early as possible before Republican morons cut it or destroy it for new signees.
Example: early retirement = $1,000 @ 62……….full retirement $ 1,300 @ 66
Early retirement 1st year = $12,000. Full retirement =o
Cumulative total 2nd yr = $24,000. Full retirement = 0
Age 64 3rd year. = $ 36,000. Full retirement = 0
Age 65 4th year. = $48,000. Full retirement =0
Age 66 5th year. = $60,000. Full reritrment. = 15,600
Age67 6th year. = $70,000. Full retirement = 31,000
Age 68 7th year. = $80,000. Full retirement = $46,600
Age69. 8th year. = $90,000. Full retirement = $62,200
Age 70 9th year. =$100,000. Full retirement =$77,800
Age 71 10th yr. =$110,000. Full retirement =$93,400
Age72 11th yr. =$120,000. Full. Retirement =$109,000
Age 73 12th yr. = $130,000. Full Retirement = $124,600
Age 74 13th yr. = $140,000. Full retirement = $140,200
Age 75. 14th yr. = $ 150,000. Full retirement = $155,600
Above is probably not the exact percentage, it's a hypothetical example,but I accessed mine before taking early retirement and it was several years before Full retirement was advantageous. Here are even more variables:
Average male life expectancy is 75 years old, poorer people and minorities live even less and wealthier people live longer.
Also, health history of both yourself and your deceased parents. Good eating habits can extend life.
For the average American with average or below average income, which is me, I chose early retirement , but don't take these comments as advice, do your own due diligence and make your own mind up yourself, you're the one that has to live with it.
Or take SS to delay spending down your retirement account? The upside of waiting to increase your SS checks is that your monthly SS checks don’t fall when the market makes its frequent negative “adjustments”.
I use the Maximize my Social Security software but I am skeptical. How can there be 27,840 collection strategies? That number does not seem right. And the answer comes back to file at 70 which is what most financial advisors say anyway.