Winning The Retirement Game

Could delaying Social Security be the key to winning the retirement game? For many couples, the answer is a definite “Yes.” For most pre-retirees, the full SS retirement age is sixty-six (and a few months). That is the age when you can receive your full benefits based on your work history. However, you can begin taking SS as early as age sixty-two. If you make this decision, you will receive a reduced benefit (25%-30% for life. You can also choose to delay receiving your benefit until age seventy. Each year you wait, your benefit rises 8% for life (up to 32%, depending on your age). Think of it as an 8% guaranteed annual return on your SS investment for four years. All totaled, your monthly benefit could be as much as 75% higher than if you choose to take it at age sixty-two. This is the key, for many people, to maximize their retirement income for themselves and their spouse.

My father offers an ideal example. He delayed his SS retirement benefit until age seventy. My mother never worked outside the home, so she received one-half of his benefit. She lived until age eighty-nine, and he lived until age ninety-nine. We estimated that he paid into SS $250,000 but received total benefits in excess of $1,400,000! Living a long life makes this decision a great one but remember, had he died before my mother, she would have stepped into his place and received his (higher…because he delayed) SS benefit.

People are living longer because of continuing advancements in health science, which favors delaying SS retirement benefits. The exception might be if you and your spouse are in poor health and are not likely to live to SS life expectancy (age 83 for a male at age 65 today; age 85 for a female at age 65 today). If this is your situation, delaying SS may not be the best choice.

Strategies for Delaying Social Security

If delaying SS makes sense, why do so few people do it? The main reason is they need the income now. Here are some strategies for bridging-the-income-gap:

  • Keep working. My father often told me, “Son, as long as you enjoy what you do, keep working.” He worked until his death at age ninety-nine. It kept him engaged and his mind active and, I believe, contributed significantly to his longevity.  
  • Use retirement plan assets such as your IRA. In the old days, we thought about avoiding taking money from our retirement account(s) for as long as possible to delay paying income taxes. However, after the passage of the SECURE Act, most non-spouse beneficiaries of retirement accounts must withdraw all the money within ten years. It’s often children who also happen to be in their high earning years, causing the distributions to be taxed at a higher income tax rate. This makes the strategy of leaving your IRA to your children much less attractive and using the funds during your retirement years much more appealing. Careful planning with your tax or financial advisor is advised.
  • Work part-time. I have found that many people can work part-time, either with their current employer, a new employer, or turning a hobby into an income stream. A little earned income can go a long way during retirement. Maybe you mix in some withdrawals from retirement plans or savings to get you to age seventy.
  • Downsize your home. For most people, their home is their single largest asset. By retirement, many have fully paid off their mortgage. By down-sizing, you can extract equity in your home to pay monthly bills. A similar but more aggressive strategy is using a reverse mortgage. Remember, if you sell your home, the first $500,000 (couples; $250,000 for singles) is not subject to long-term capital gains taxes. Smart downsizing can significantly reduce home expenses such as yard and home maintenance.  

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Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States.  He is the author or co-author of six books, including 50 Rules of Success J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaireand 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch GroupConsult your financial advisor before acting on comments in this article.


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