PLANADVISER - July/August 2019 - 16

Social Security Maximization
trendspotting
One's claiming age is key to stretching benefits
THE conventional wisdom about
how someone should draw down his
various assets to maximize retirement
income-noted by many of the
big recordkeepers in their retirement
tools and calculators-is that a person
should take out all of his taxed money
first until it is gone, and only then draw
down tax-deferred money. Then, he
should take the tax-exempt dollars.
According to William Meyer, founder
and managing principal of Social
Security Solutions, this rule of thumb
is pervasive, but new analytical tools
show it actually, in most cases, is
the opposite approach of what would
maximize lifetime wealth for a given
individual.
Why is this? According to Meyer,
when one retires, on average he will
indeed drop into a lower tax bracket,
because he is moving out of his prime
earning years and starting to live
off savings. But when this individual
soon reaches and starts drawing full
Social Security at age 70-likely just
a few years after retirement-that is
right about the time when required
minimum distributions (RMDs) kick
in. When that happens, at i.e. 70-1/2,
many retirees' income jumps pretty
significantly, and, as a result, the
Social Security benefits they waited
so patiently to claim will be taxed at
potentially up to 85%, because this rate
is based on overall income including
withdrawals from tax-deferred retirement
accounts, Meyer warns.
Given this fact, by instead first
winnowing down the tax-deferred
401(k) or individual retirement account
(IRA) assets while waiting to file for full
Social Security, this could reduce the
lifetime impact of RMDs and reduce the
taxes, potentially quite significantly, on
the net income from Social Security.
As Meyer and others agree, Social
Security claiming is always a complicated
matter to discuss in the abstract,
but there are some general rules and
principles to know. The first consideration
when it comes to maximizing
Social Security income is to work for
at least 35 years, as the benefit takes
into consideration one's highest 35
years of income history. The second,
even more important, consideration is
when to start taking Social Security.
Benefits are reduced by up to 25% if
an individual claims before full retirement
age, but are increased by up
to 35% if the person delays claiming
past full retirement age, up to age
70. Roughly speaking, every year one
waits to take Social Security, the
benefit goes up by 8%.
Experts agree that the better one's
health and the longer the person and
his or her spouse expect to live, the
more it makes sense to take Social
Security later-as long as the couple is
not putting a strain on its investments.
Another factor is employment. If
someone plans to continue working, it
may make sense to delay taking Social
16 | planadviser.com July-August 2019
Art by Jackson Joyce
http://www.planadviserdigital.com/planadviser/july_august_2019/TrackLink.action?pageName=16&exitLink=http%3A%2F%2Fplanadviser.com
PLANADVISER - July/August 2019

Table of Contents for the Digital Edition of PLANADVISER - July/August 2019
