For retirees, one of the most challenging questions is how to generate income. After you stop working, you’ll need to find a way to ensure your financial stability for the long term. Two predominant ways people use to have income in their post-work years is through either an IRA or Social Security benefits.
If you have a decent amount of savings in an IRA, you may decide to take distributions from that. Or you could file for Social Security benefits as soon as possible. Some retirees choose to use both sources, while others might have the ability to use one and save the other. But which scenario is best for you?
Why tap into your IRA first?
One reason to hold off on Social Security is that the longer you wait to file, the higher your benefit will be. Your full benefit amount is based on your filing when you reach your full retirement age (FRA), which for most people lands between their 66th and 67th birthdays. You can file as early as age 62, but doing so usually results in a permanent reduction in benefits.1
You can also wait past your FRA to file and net a permanent 8 percent credit on your benefit amount per year. You can’t delay filing past age 70, though. For instance, if your FRA is 66 and you file at age 70, you will receive a total 32 percent increase on your benefits.2
Utilizing your IRA before you file for benefits might help you delay Social Security and increase your benefits as a result.
Why file for Social Security first?
Filing for Social Security first may allow you to keep growing your IRA on a tax-deferred basis. This strategy can also give you a liquid asset class that can help you pay for emergencies. Life can be unpredictable. As you age, you may need long-term care, or you may need to pay off expensive medical bills.
Also, your primary goal may be to leave assets for your spouse, children or other loved ones after you pass away. If that’s the case, it may be a better idea to use your Social Security benefits and preserve your IRA. If you have a traditional IRA, you will have to start taking distributions at age 70½. If you have a Roth IRA, however, you can delay distributions as long as you want.
Consult with a professional.
Deciding whether to claim your benefits or hold off can be a tricky question to answer. One of the best ways to ensure you’re meeting your retirement goals is to consult with a financial professional. Working with an adviser, you can determine your goals and needs and find the best path to meet them.
Ready to learn more about retirement planning? Contact us at Gallagher Financial Group. We can help you evaluate your objectives and needs, and then develop a strategy. Let’s connect soon and start the conversation.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov
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