THINKING RETIREMENT – ANDY LANDIS– Maximizing your Social Security is all the rage. But is it the right move for you?
Strategies like “Withdraw and Refile,” “File and Suspend,” and “Restricted Application” are getting attention everywhere. They are detailed in my book, Social Security, The Inside Story, and numerous articles. New software companies like www.socialsecuritychoices.com, http://maximizemysocialsecurity.com, and www.socialsecuritysolutions.com have sprung up to list your options and point out the most advantageous, for a fee. Even the time-honored strategy of simply filing later has gained cachet.
With all this attention, surely it’s a good idea.
Not so fast.
Maximizing Social Security may or may not be best for you. It’s a complex financial planning question. And beyond that, it’s a personal life planning question.
Maximizing strategies boil down to filing for Social Security as late as possible. They’re based on the fact that drawing Social Security earlier—think age 62—yields a lower monthly payment, while later filing—as late as age 70—yields a higher monthly payment. If your life expectancy is average or above, filing later can mean higher lifetime payments. That’s especially true if you’re married, since the two of you as a couple have an even higher life expectancy.
Seems to make sense. You paid for Social Security all your life. Why not maximize the dollars you get back?
The catch is that by maximizing, there’s a trade-off: lower payments early in retirement to get higher payments later. Here are some considerations:
- Life expectancy. Obviously, if your life expectancy is short (due to illness, family history, or a penchant for living on the edge), you don’t short yourself now to get a bigger payoff later. Collect while you can.
- The near-term shortfall. What will you use for income while you wait for a later Social Security filing date? A great income source is to work longer. But if you’re already retired and making withdrawals from retirement savings, it might make more sense to take the Social Security early. Earlier Social Security could mean more savings later. Waiting for Social Security can be bad for your savings’ health.
- Marital status. If you’re married, future Social Security payments to your surviving spouse are a factor, as is your spouse’s life expectancy. If you’re single or in a non-marital partnership that’s not a consideration. (Note that Social Security does not recognize same-sex marriages.)
- Estate planning, estate planning has built-in survivor payments for your spouse and certain children. But providing for anyone else will depend on your savings. According to an estate planning attorney, draining your savings could be bad for your heirs.
- Taxes. If the alternative to Social Security is withdrawals from a traditional IRA, every dollar withdrawn will be taxable. Any dollar you take from Social Security instead will be at least 15% tax-free. What is the best timing for those tax savings, early or late?
- Required IRA distributions. This is related to “taxes” above. The more money in your traditional IRA at 70-1/2, the higher your Required Minimum Distributions (RMDs), which will be 100% taxable. It might make sense to use your IRA earlier to reduce your tax burden later.
In short, it’s not just Social Security you want to maximize; it’s all your retirement dollars throughout your life (or joint life, if married). It’s a complex decision with these (and more) interrelated factors. I can suggest ways to maximize your Social Security, but I’m not qualified to tell you whether that’s best for you. It’s a financial planning question, so you may want to consult a financial planner.
Furthermore, it’s not just your retirement dollars you want to maximize, but your retirement life. You want to maximize your experiences, your connections, and your growth, while making sure your financial decisions align with your personal goals and values. To do so you might consult with a “financial life planner,” like those listed at www.moneyquotient.org.
Social Security is an important part of your larger financial picture. You can build a worthwhile retirement through wise Social Security planning, using maximizing strategies if appropriate. If you need to secure your property assets, a real estate law firm can help.
As always, keep on planning.