Separate Needs And Wants
Fish then advises another step in creating lifetime income in retirement separating ones needs versus ones wants. This type of retirement income strategy is also called a Flooring Retirement Income Strategy or essential vs discretionary.
Your income for your retirement spending needs should come from a secure income source. While money earmarked for your wants can have more risk associated with it.
We simply figure out the basic needs or the must haves, and calculate how much is needed on a monthly basis, Fish offers.
We calculate the monthly need and back out what is provided by social security and pension, if applicable. We may utilize a fixed or variable annuity to get to the needed lifetime income, and then use a total return strategy to determine the discretionary expenses, or the want to haves this could be a four to five percent withdrawal off of principal and is looked at annually to determine the proper amount to take off.
That money is moved to cash, so the money for the next year is there to spend and not subject to market fluctuations, Fish says. If we have a bad year in the market, the discretionary expenses can be adjusted.
Of course, it is important to remember that your needs and wants will evolve throughout your retirement. Explore the different phases of retirement and how they impact your spending.
Ways To Increase Social Security Benefits
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Knowing how to increase Social Security benefits is important, since those checks will likely be a major source of your income in retirement.
Unfortunately, many people dont understand how Social Security really works. They claim too early, miss out on important benefits and fail to use strategies that could boost their lifetime income. Their mistakes can cost them as much as $250,000, researchers have estimated.
Here are eight ways to increase your Social Security benefits.
Your Decision Affects Your Whole Family
Sometimes maximizing your family’s benefits is a bigger priority than getting the most you can on your own.
For example, if you are married with a disabled child, claiming benefits will also trigger what’s known as a child-in-care spousal benefit and a disabled child benefit.
In this case, waiting to let your monthly checks grow could ultimately reduce the total lifetime benefits your family receives.
While it would still make sense to wait to claim past age 62 in that situation, it wouldn’t make sense to wait all the way to age 70, according to Kotlikoff.
The big problem with Social Security’s software is that it doesn’t deal with the family as a unit.Laurence Kotlikoffauthor and economics professor at Boston University
However, there are situations when waiting until age 70 will result in a higher benefit for your family.
That will increase the amount your spouse may be able to collect on your record if you die.
Those payments, known as survivor benefits, enable a widow or widower to receive the full amount of their spouse’s monthly benefit which may be their own retirement benefits plus excess survivor benefits if they have their own earnings toward Social Security.
Ex-spouses may also be eligible for survivor benefits, provided they were married for at least 10 years and waited to age 60 if they got remarried.
Because there are thousands of Social Security claiming strategies, it helps to use independent software that can calculate the best strategy for you.
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Maximizing Your Social Security Benefit
Each year you delay collecting Social Security between ages 62 and 70 increases your payout by about 8 percent.
Here’s a short rundown of the pros and cons of various claiming strategies:
Claiming at age 62
THE CASE FOR ITIf your spouse dies and you take the survivors benefit before your full retirement age, you’ll collect benefits for a longer period of time.
THE CASE AGAINST ITIf you take the survivors benefit before your full retirement age, the benefit is likely to be reduced by up to 29 percent.
Bottom lineLook before you leap. Each person’s situation is different so the decision to take the benefit early is a personal one.
Consider Working In Retirement
Theres no rule that says you cant work and claim Social Security at the same time. There are, however, restrictions on the amount of benefits you can receive if you continue working before reaching full retirement age.
Specifically, the SSA deducts $1 from your benefit payments for every $2 you earn above the annual earnings limit allowed if youre under full retirement age. The limit for 2019 is $17,640. Once you reach full retirement age, the deduction goes to $1 for every $3 you earn over $46,920.
So if youre plan to claim benefits while working, be mindful of earnings to avoid reducing your retirement income. The good news is that once you reach full retirement age, you can earn as much as you want without facing a decrease in your monthly payment. Plus, your benefits will be recalculated to exclude the months when your benefits were reduced or withheld because you earned too much.
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Be Tax Efficient With Withdrawals
Every penny counts when managing money in retirement and that is especially true when it comes to tax savings.
Every retirement account you have may be taxed differently and you will want to be strategic with how and when you take withdrawals from each bucket. A few tips to consider:
- Prioritize withdrawals for your required minimum distributions mandatory withdrawals that start at age 72.
- Consider a Roth conversion to spread out when and how much you are taxed.
- Be aware of how much you withdraw each year and how the amount impacts your tax bracket.
Taxes are really complicated and what is best for you is different from what is best for anyone else.
Tax efficiency is one compelling reason why you might want to work with a good financial advisor for retirement. You will want to look for someone with experience specific to income taxes as well as someone familiar with retirement drawdown strategies.
And, did you know that the NewRetirement Planner models your future tax liability. You now have the tools to make changes in your plan and see how it impacts this significant expense.
Maximize Your Current Earnings
As mentioned in the previous strategy, the more you earn and pay into Social Security, the higher your retirement payments will be. That means that increasing your earnings is one of the best ways to maximize your ultimate benefit.
As long as you have 35 years of work history, any higher-earning years later in life will replace the lower-earning years. Even a low-earning year is better than having a zero averaged in.
If you now earn more than you did earlier in your career, then working an extra yeareven after you retirecould increase your future payments. You can open a part-time consultant practice or offer your expertise as a board member of an organization.
Investigate Divorced Spouse Benefits
If youre currently unmarried but a previous marriage lasted at least 10 years, you could qualify for spousal benefits based on your exs work record. The amount can be up to 50% of the workers benefit at his or her full retirement age. If you remarry, however, the divorced spouse benefit stops. You must be at least 62 to get spousal benefits.
If your ex has died and the marriage lasted at least 10 years, you could qualify for survivor benefits of up to 100% of your exs benefit. You can remarry at 60 or older and still receive divorced survivor benefits. Survivor and divorced survivor benefits can begin at age 60, or at age 50 if the survivor is disabled, or at any age if youre caring for your exs child who is under 16 or disabled . People receiving survivor benefits can switch to their own benefit later if thats larger, and vice versa.
Pro tip: Your ex must be at least 62 for you to receive a divorced spousal benefit, but does not need to be receiving his or her own benefit. Survivor benefits are based on what your ex was receiving or would have received at full retirement age. If you start benefits before your own full retirement age, however, the amount you get will be reduced.
Know Every Benefit Youre Entitled To
The Social Security Administration doesnt just pay retirement benefits directly to the worker who earned them. It also pays survivor benefits, divorced survivor benefits, spousal benefits, divorced spousal benefits, child benefits, and a few other types of benefits. But because Social Security doesnt inform individuals when they become eligible for these benefits, you could miss out on benefits if you arent proactive.
Heres another example from Prunier. The surviving spousal benefit and the workers benefit are treated as two separate benefits. A person who lost their spouse before retirement may have the opportunity to receive a survivor benefit first, then switch to their own retirement benefit later, or vice versa.
With a modest worker benefit and retirement at age 62, for example, one might take a reduced worker benefit at 62 and defer the larger widows benefit to full retirement age in order to get an unreduced benefit, says Prunier.
Or, if one is still working and the worker benefit after deferral credits will exceed the survivor benefit, one can claim the survivor benefit at full retirement age and switch to the worker benefit at 70.
However, Prunier also warns you should remember that for all unusual approaches to boosting Social Security benefits, significant restrictions or exceptions may apply. Anyone thinking about taking advantage of these approaches should always ask themselves:
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Webinar: Maximize Social Security In Your Retirement Strategy
Learn what you need to know to help you get the most out of your Social Security benefits by viewing the Fidelity webinar Maximize Social Security in Your Retirement Strategy at 2 p.m. on Tuesday, July 31.
Jon Hill, virtual education consultant for Fidelity Investments, will share strategies for claiming your Social Security benefit and how it fits with other income sources to create your retirement paycheck. Following this session, you will:
- Recognize how to use Social Security for your retirement paycheck
- Understand important Social Security claiming strategies
- Be ready to take the next step to create your retirement income plan
Hill provides web-based educational workshops for Fidelity 401 and tax-exempt clients and their employees to help them understand their retirement and investment needs. He holds a bachelor’s degree in finance from the University of Utah and a Certified Financial Planner certificate. He is also a licensed insurance representative.
You do not need to be a Fidelity participant to register for the webinar.
Webinars And Online Tools
If you are unable to attend the Roadmap to Retirement workshop detailed above, you can find the content and resources from the workshop below.
Maximize Social Security in Your Retirement Strategy – This webinar will help you understand different Social Security choices and how to put a plan in place to prepare for living in retirement.
Turn Your Savings into Retirement Income – This webinar will help you learn why it’s important to have a plan for generating income in retirement and factors to consider when transitioning your savings into retirement income.
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Decide Your Claiming Age
Your estimated benefit amount is what you’ll receive if you begin claiming at your full retirement age . For those born in 1960 or later, your FRA is 67 years old.
You can file for benefits as early as age 62, but by doing so, you’ll receive smaller checks each month. If you have an FRA of 67 and you file at 62, for example, your benefit amount will be reduced by 30%. On the other hand, if you wait until age 70 to claim, you’ll collect your full benefit amount plus an extra 24% each month.
There’s no right or wrong answer as to the right age at which you should claim, and your decision will depend on your personal preferences and situation. Just be aware that the age at which you claim will have a significant impact on your monthly payments, so it’s wise to have a plan in place well before you retire.
Withdraw Your Social Security Application
Heres one opportunity to reverse a claiming decision you regret. If youre within the first 12 months of claiming and you have enough cash available, you can withdraw your application and repay all the benefits youve received so far.
If you do, then it is like you never claimed in the first place, says Arthur Prunier, a retirement income certified professional® instructor at the American College of Financial Services.
Lots of people file for Social Security without fully understanding the consequences, he explains. For example, many people choose to claim Social Security before full retirement age, but later wish they had not done so.
After repaying what you received, you can claim a tax refund or credit for any taxes you paid on those benefits.
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Create A Strategy With Your Spouse
If you’re married and your spouse is also entitled to Social Security benefits, it’s a good idea to create a strategy for when each of you will claim. Again, there’s no wrong answer here, but your decision could affect the rest of your retirement.
Perhaps the two of you want to file at the same time, for example, even if that means claiming at different ages. Or maybe one of you claims earlier while the other delays benefits, giving you both some extra money earlier in retirement, while still taking advantage of those larger checks later on.
While it may not be the most pleasant topic to think about, your lifespans could also affect your decision. When one spouse passes away, the other may be entitled to the deceased spouse’s entire benefit amount in survivors benefits.
If you have reason to believe that the lower-earning spouse will outlive the other, it may make sense for the higher earner to delay benefits. If that spouse passes away first, then the survivor may be entitled to a larger benefit amount — which could go a long way later in life.
Social Security benefits can make for a more financially secure retirement, so it’s wise to make the most of them. By creating a plan when you’re still a few years away from retiring, you’ll be as prepared as possible.
Be Tactical With Spousal Benefits
Getting married may add a wrinkle to your Social Security strategy. Spouses that were married for at least 10 years are eligible to claim not only their own benefits, but spousal benefits too. And thats no small matter. Claiming spousal benefits means reaping 50% of your current or former partners annual payout.
To make the most of these payments, first determine which spouse will earn a larger benefit. The lower-earning spouse can start claiming Social Security at an earlier age, while the higher-earning spouses benefit amount continues to grow. Once the higher-earning spouse reaches 70, the couple can switch to filing against that persons earnings history.
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Why Your Social Security Benefits May Be Reduced In 2022
You would probably expected your Social Security check to increase in 2022 if youve heard about the highest Social Security cost-of-living adjustment in years. But unfortunately, that wont be the case for all retirees.
You may be liable to receive Medicare surcharges if you have a high income in retirement. This is because surcharges for Medicare are usually deducted from your Social Security income.
In this particular situation, you might be surprised to learn that this year, Social Security payouts will be smaller than in 2021. Here’s an overview of what changed this year for Social Security recipients.
In 2022, the significant change in Social Security for retirees will be a 5.9 percent COLA to monthly retirement checks and Supplemental Security Income . This is the greatest COLA increase since 1982.
The COLA will increase the average monthly retirement check by $92, bringing it up to $1,657. In addition to that, the maximum monthly payout for an employee who retires at the full retirement age will increase by $197 to $3,345.
Social Security checks, which benefit those with low income and small financial resources, will be increased. In 2022, an individual’s highest monthly SSI benefit will be $841, up by $47 from 2021, and for a couple, $1,261 up by $70 from last year.
What About the Hold Harmless Provision?
Maximum Taxable Income
The tax rate stayed at 6.2 percent in 2022, although the income threshold was raised to $147.000.
GPO or WEP?
Divorced Dont Forget Your Ex
If youâve been divorced for at least two years and havenât remarriedâand your marriage lasted 10 or more yearsâyou may be able to claim 50% of your exâs full Social Security benefit. âThe same payment rules apply to divorced spouses as to current ones,â says Vrdoljak. To qualify, you must be 62 years of age or older, your ex-spouse must be eligible to begin collecting, and the spousal benefit must be greater than what youâd receive based on your own work history. Even if your ex has remarried or isnât yet collecting Social Security benefits, youâre still eligible to receive a portion of their benefits.
Your advisor can help you understand how your Social Security income fits into your retirement plan and decide when it might make the most sense for you to claim your benefits.
Read âWomen and Life-Defining Financial Decisionsâ for more insights on claiming Social Security benefits.
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