Those approaching retirement have a lot to consider. Whether you have enough money to live on in your later years is an important factor to consider. But for those who have extra money to spend, deciding how to spend it (vacation, time with family, or charity) is another key thing to consider.
Wait until age 70 to collect Social Security, and benefits will increase by 8% each year after age 65.
Social Security benefits are based on up to 35 years of indexed earnings.
For retirees with 401(k) income, up to 85% of Social Security payments are taxable.
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The good news for American retirees is that everyone can collect Social Security benefits at age 65 (or be eligible to receive them—you must apply). Those who wait longer can get higher payouts and also take advantage of those benefits early (something most personal finance experts warn against).
But in terms of putting together a “to-do” list to consider before the end of the year, here’s the best advice I’ve seen for baby boomers looking to prepare for their golden years.
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Social security card with 100 dollar bill
Finding out what one’s expected benefits are should be the first step in trying to create a monthly retirement budget. After all, Social Security can account for a large portion of most retirees’ retirement income, especially for those who choose to stop working after starting to receive benefits.
For investors who haven’t built a retirement portfolio at all, these payments would equal the entirety of their monthly income. Therefore, understanding how to calculate these benefits is an important first step in developing a comprehensive plan.
Social Security benefits are based on up to 35 years of indexed earnings. This means that seniors who choose to work over age 62 may see their overall income increase if their wages are higher than in their lowest earning years. As a result, many people may consider the option of staying in the labor force longer, not only to contribute to retirement accounts but also to increase potential Social Security payouts.
For those who can afford to do so and are in good health, another key factor to consider is that you may have to wait until age 70 (rather than retiring at full retirement age) to maximize your benefits. For every year a would-be retiree waits after age 65, benefits will increase by 8% for the rest of their life. Importantly, the starting amount a person elects to receive will qualify for annual cost-of-living adjustments, so maximizing one’s basis may be the best approach.
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old man’s thoughts
Spousal and survivor benefits are two areas that many people approaching retirement may not pay enough attention to. It’s important for people who are married, divorced, or widowed to carefully evaluate how their Social Security benefits interact with their partner’s Social Security benefits. That’s because spousal benefits can pay up to 50% of a spouse’s full retirement age benefit, while survivor benefits can increase the retiree’s payment to the deceased’s full amount.
In other words, this has some complex implications for people who are married (or married), and financial advisors may be quick to point out that everyone’s situation is different. However, there are certain strategies that can be implemented for both the high-income spouse and the low-income spouse to try to maximize benefits throughout retirement.
In this article, I recommend staying off the internet and social media for advice and talking to professionals. People in this group may benefit greatly from developing a comprehensive plan where a spouse can receive benefits first or how to maximize their own benefits if their spouse dies.
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Couple discusses their tax and health care plans
Taxes and health care are often two topics that few of us want to think about. There’s good reason for that – the taxman can bring in huge bills, and thinking about health care means thinking about getting sick. No one really wants to think about these things.
However, the reality of course is that death and taxes are the only two certain things in life, so it’s probably a good idea to at least be prepared for what’s coming.
Whether one’s plan for tax and medical expenses (which, by the way, continue to rise faster than inflation) is to withdraw funds from a 401(k) or have Social Security pay a portion of those expenses, there’s a lot of math involved in figuring out how much money needs to be set aside for a rainy day.
For those who have income through a 401(k) plan to cover such expenses, Social Security payments can be taxed at about 85%, so high medical bills and withdrawals from retirement accounts can be a double whammy for seniors. Planning for this is crucial.
However, perhaps the most important part of managing the complex U.S. healthcare system is signing up for Medicare benefits when eligible. Late enrollment can trigger penalties, and Medicare premiums are tied to income, so figuring out how much a person wants to withdraw in retirement and within what age range is an important step to take early (ideally, before retirement).
You might think retirement is all about picking the best stocks or ETFs, but you’d be wrong. Even large investments can become a burden in retirement. This is a simple distinction between accumulation and distribution, but it makes a huge difference.
Good news? After answering three quick questions, many Americans are rebalancing their investment portfolios and discovering they can retire earlier Better than expected. If you are considering retirement or know someone who is, please take 5 minutes to learn more here.
