Social Security makes up a significant portion of most people's retirement
income, and the way to maximize that income is to delay claiming.
The longer you can wait until age 70, the more you get each
month, and that helps you have more money to spend on the things
that are important to you in retirement. You also have the opportunity,
if you quit working and delay claiming, to do advanced planning...
And we're going to look at some examples of that. One of the
ways to delay claiming is simply to work longer, and that doesn't really
sound like retirement, but you can potentially change the way you work.
Perhaps work part time, so that you can at least withdraw less from
your accounts and take less of a financial hit, and doing that has
several benefits. One of them is of course the financial aspect,
but you can also stay engaged. So, if you are working each day,
you're going to stay mentally active, perhaps physically active, you're
going to be talking with co workers and clients or whatever it is
you do for work. That can help you stay engaged in the community,
slow the aging process, reduce the chances of cognitive decline, that kind
of thing. And if you get health insurance through your work,
maybe even if you just work part time, that's an added benefit until
you get to age 65 and you qualify for Medicare.
The thing about working longer aside from... You're not retired, is that
it can be a great idea, but it's not the best strategy.
Unfortunately, what happens is a lot of people plan to work longer than
they actually are able to... If we look at this study from the
Employee Benefits Research Institute, we see when people expected to retire,
around age 65, and when they actually did, typically around age 62.
And the reasons for that, shown over here on the right,
unfortunately, sometimes there are health problems or disability. Perhaps
you're actually caring for somebody else, and it's not your own health issues,
or there may be changes in your job or your industry that make
it so that you can't keep working. There are also some good news
reasons why people stop working, and in this case, about a third of
them were able to financially just retire early. Another strategy is to
spend down your retirement assets as you wait for your Social Security benefit
to increase. And I'm going to show you an example of that in
my financial planning software that I use with clients, but I want to mention
that this is something that can be quite scary to do,
because you're going to be taking large withdrawals in the early years,
and then those withdrawals of course, shrink once your benefits begin.
But if everything works out right, this can actually be a good time
to make some strategic moves in those low income years between when you
stop working and when your Social Security benefits start. So we'll take
a look at Jane Doe. This is an over simplified example.
She is 60 years old, going to retire in five years,
and she has $800,000, half of it in pre tax IRAS,
the other half in taxable accounts. She wants to spend 4,000 a month
after taxes, and we're going to look at taking Social Security at age
70. Perhaps she is in really good health and is expecting to live
a long time, and she really likes the idea of that guaranteed the
lifetime income coming from the government. In Jane's case, we can see that
she has no income at age 65, but her expenses are still there
and she's got that 48,000 a year. It's inflated a little bit in
those years, since we last looked at her spending. She's got a little
bit extra for health care, so it comes to about 60,000.
Her tax payment is relatively low because she's not earning income.
It's mostly going to be anything that happens with her accounts,
perhaps growth or withdrawals, but the scary thing for her is she's spending
over 60,000 a year. Again, she started out with about 800,000,
so that's quite a lot to take out each year, and it can
certainly be scary, but once she does begin those Social Security benefits,
her withdrawals can shrink substantially, and that's because she's getting
a decent amount of what she needs from her Social Security,
so. There is this period where there's a sharp drop off in her
account balances, and in this case, it's actually not too dramatic,
but it feels dramatic, and then that drop off levels out.
Now, given that her income is so low in these years before she
starts taking Social Security, she could potentially do Roth conversions
during those years, and that means strategically choosing to pay taxes so
that she can potentially get tax free income out later from a Roth
account. So that's something that I look at with clients, and if you'd
like to explore that, we can certainly talk about working together...
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Besides those two options, there are a couple of other ways to delay
when you claim Social Security. You might tap your home equity or you
might look at insurance policies. What I would say is that those are
extremely complicated strategies like anything else, like spending down
your assets, like continuing to work, they take some serious consideration.
I hope you'll look into that, but it's more detail than I want to get
into right now. So I hope that this has been helpful in giving
you some ideas, painted the picture on what it might look like to
delay claiming your Social Security so you get as much as possible.
Thanks and take care.