Timing Your Social Security Benefits

timing your social security benefitsThere are many factors to consider when timing your Social Security benefits. Every person’s situation is different.

If you’re thinking about early retirement and you have sufficient resources (investments, pension, and so on), you’ll have more flexibility in when you begin claiming Social Security. Your marital status, overall health, life expectancy, employment wishes and retirement goals are also key factors in timing your Social Security benefits.

Full retirement age (FRA) for Social Security is between 66 and 67 years (depending on the year you were born). Waiting until then guarantees your full monthly Social Security benefit, based on your employment history.

You can claim benefits up to five years early, though your Social Security income would be 30 percent less. Waiting to claim benefits after FRA will provide an additional 8 percent income per year, up to age 70 years.

Your Perspective advisor can help you evaluate your options and create a Social Security plan. It’s one of our Core Client Services. That’s the value of Perspective.

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To learn more about he many facets of retirement planning, click here for another article.

 

By |2021-06-11T16:55:20-07:00June 28th, 2021|Retirement|

Long-Term Cost Planning

Did you know that spending often decreases at retirement? One reason is simply that our habits and desires may change. According to Genworth’s annual Cost of Care Survey, people spend less on transportation, vacations and food as they age. They often spend more on donations and gifts. Health care costs also consume a larger percent of spending as we age. That’s why long-term cost planning is critical. Understanding and planning for long-term needs can help you make the most of your finances today, while providing for your comfort and security down the road.

Unexpected events can also lead to a significant drop in spending. For example, a layoff or health event that causes early retirement can lower lifetime resources and force spending cutbacks.

Planning for expected and unexpected changes in your income and expenses down the road will help you maintain your desired lifestyle. There are many elements that inform such planning, such as:

  • Pensions, retirement accounts, other potential future income
  • Disability and long-term-care insurance
  • Medicare, Medicaid, private insurance
  • Projected inflation, rising costs of care

Most people will require some level of support services later in life. About 60 percent of seniors will need a cane, walker or wheelchair to remain mobile, according to the U.S. Health and Retirement Study (an ongoing project of the University of Michigan’s Institute for Social Research). And 20 percent will need help with bathing, eating and dressing. Cognitive decline will require more intensive care.

Knowing the full range of potential costs have been considered as part of your long-term financial plan creates peace-of-mind for you and your loved ones.

Long-term cost planning is part of our Core Client Services. That’s the value of Perspective.

Tax Benefits of Roth IRAs and Conversions

Everyone knows saving for retirement is important. Knowing the best options and how to get started isn’t always as obvious. For example, do the tax benefits of Roth IRAs mean they should be part of your retirement plan? Or are traditional retirement accounts a better fit? Here are some retirement account basics to help you understand.

There are two main retirement vehicle categories:

  • Tax-deferred accounts (traditional IRA & 401k savings) allow you to pay no income tax on the retirement savings today; later, all withdrawals (annual deferral and compound growth) will be taxed at future marginal income-tax rates.
  • Tax-free accounts (Roth IRA or Roth 401k) require you to pay taxes now on the savings, but not on any withdrawals in retirement. In 2020 you can contribute $6,000 to a Roth IRA if you have earned income, and you are below the $124,000 to $139,000 phase out range.

Does the difference really matter right now? Current income tax rates are likely the lowest they will be for a decade; and, they’re set to revert to higher rates in 2026. (See chart below.) They could go even higher in the future.

If you’re currently a single 30-year-old grossing $52,000, your tax rate is 12 percent after your  standard deduction of $12,400. In 2026, the rate for the same income will be 15 percent. But, odds are you’ll be making more. Let’s say your income is $150,000 in 20 years; you’ll be in the 28 percent income tax bracket. That’s more than double your rate today. Thus, paying taxes on the deferral now through a Roth can mean significant tax savings in the long-run.  Start investing as soon as you have earned income – say in your teens or 20s – and you’ll benefit from 40 years of compound interest. Talk to the young people in your life about the importance of early investing. Or, ask your financial planner to chat with them.

Those at or near retirement age should look at how Required Minimum Distributions (RMDs) will impact their income taxes. Starting in 2021, RMDs must begin the year you turn 72. It might make sense to take early distributions or make Roth IRA conversions to use up the remaining amounts at the lower tax rates. To watch a brief video in which Mike explains RMDs, click here.

tax benefits of Roth IRAs

 

 

By |2020-09-29T15:43:13-07:00October 5th, 2020|Retirement|

Video Library

Scroll through the Perspective Financial Services Video Library to watch original, brief videos on a wide range of personal financial planning and investing topics. (more…)

New Perspectives on Retirement

New Perspectives on RetirementWhat does it mean to live well in retirement? A five-generation study conducted November 2019 to June 2020 provides some new perspectives on retirement post-COVID-19. The majority of U.S. retirees (55 percent) defined retirement as more than simply the end of work. They consider it a new life chapter filled with new choices, freedoms and challenges across four important areas: health, family, purpose and finance. The study was conducted by Edward Jones in partnership with Age Wave and The Harris Poll.

Retirees Show Resilience

It sheds light on more than retirement, too. The research shows how COVID-19 has impacted the lives, health and outlooks of Americans across multiple generations. Despite the virus’ severe and disproportionate impact on the health of aging adults, older Americans are coping far better than younger ones. About 37 percent of Gen Z and 27 percent of millennials said they’ve suffered mental health declines since the pandemic began. In contrast, only 15 percent of baby boomers and 8 percent of silent generation respondents said the same.

“COVID-19’s impact forever changed the reality of many Americans, yet we’ve observed a resilience among U.S. retirees in contrast to younger generations,” said Ken Dychtwald, Ph.D., CEO of Age Wave. “Older Americans tend to recognize the value of a long-term view, and so as they think about their lives, longevity and legacy, they’re able to pull from an array of experiences that help them weather current storms, feel gratitude about many aspects of their lives, and still plan for the future.”

The study also shows COVID-19’s initial economic impact may have long-lasting implications.

Reflecting a great deal of generational generosity, 24 million Americans have provided financial support to adult children due to the pandemic; and 71 percent of retirees said they would offer financial support to their family even if it could jeopardize their own financial future. In addition, 20 million Americans have stopped retirement savings contributions.

Click here to read a PDF of the full report, The Four Pillars of the New Retirement.

By |2020-08-26T11:29:23-07:00August 31st, 2020|Current Affairs, Retirement|