Introduction
Most individuals in or near retirement have three financial legs to support them in retirement: Social Security benefits; qualified retirement savings [401(k), IRA, 403(b), etc.] on which taxes have not yet been paid; non-qualified
savings and investments on which taxes have been paid on the principal and possibly some or all of the earnings. By carefully coordinating the use of these three sources of money, the typical retirement minded couple can add up to 20% to their after-tax income and afford a better retirement lifestyle.
Unfortunately, most couples in or near retirement overlook the importance of coordinating the uses of their available money. The results are higher tax bills and lower lifestyles in retirement. Both can be avoided. In what follows, you will be shown how the typical retired couple can add as much as 20% to their after-tax retirement income just by coordinating when to use the different categories of their money. There is nothing to buy, no risky investments to make or additional money needed: you just use what you have smarter. This
is very important for a married couple because one spouse could spend as much as one-third of their lifetime in retirement. Conventional wisdom says to delay the use of your qualified money as long as possible in retirement because it grows faster due to the tax deferral. Generally, the conventional wisdom is wrong. The millions who have heeded this inappropriate advice will have less after-tax money to support them in retirement. This Guide will show you that qualified money should be used first so you can delay taking Social Security benefits as long as possible. There are also tax advantages to using your non-qualified money last in retirement. This timing can give you more after-tax income in retirement and a better lifestyle. Unless you have substantially more money than needed for retirement, it is foolish to pay taxes you can avoid by simply changing the timing of how your three categories of money are used in retirement. The typical retiree’s greatest fear, and also the greatest challenge, is to not run out of money before they run out
of breath. Many are in danger of losing this battle because the Center for Retirement Research is now reporting that 43% of
to live on in their golden years”. By following the advice outlined in this Guide to Social Security, you can stretch your retirement money by up to 20%. Before we can discuss when and how to use the three categories, each needs to be identified and defined. You may receive other categories of money, e.g., inheritance, life insurance benefits, loans, reverse mortgage proceeds, trust income, lottery (dream on) and support from family members, but these will not be discussed in this Guide. Also, in the following discussion we’ve assumed the “average” retirement-minded couple; however, there are many exceptions, and we recommend you seek professional advice before taking
action.
Social Security Benefits
Social Security benefits are an entitlement promised by the federal government if you or your spouse paid enough into the Social Security fund during your working years to qualify for benefits. While Social Security is not guaranteed by law, it is backed by the promise of the U.S. government and not fulfilling this
promise would be political suicide for members of Congress. Contrary to lively debates about the future of Social Security, in all probability lifetime Social Security benefits will continue indefinitely. However, to keep the program solvent there may be measured changes in the taxation of benefits, adjustment for inflation, additional taxes on workers and other changes potentially detrimental to retirees. A statement of your expected Social Security benefits in retirement can be obtained on-line at:
https://s044a90.ssa.gov/apps6z/isss/main.html.
You can also calculate future benefits at:
www.ssa.gov/planners/calculators.htm.
For the complete booklet on what you need to know about Social Security submit the form below:
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