William Penn Life, 2017 (52. évfolyam, 1-12. szám)

2017-08-01 / 8. szám

Moneywise with Bob Bisceglia, National Sales Director

Social Security myths worth bustin

The truth about claiming your benefits early

DECIDING WHEN to begin taking your Social Security benefits is not an easy feat—even for financial experts. There are many factors to consider, such as health, wealth and family situation. As always, the devil is in the details, and as with any government program, there are a lot of them.

I recently discussed the ins and outs of Social Security planning with Michael Lonier, a retirement management analyst from Florida. Here are Lonier's thoughts concerning myths about claiming your Social Security benefits early.

Myth #1: You shotdd claim Social Security early, before your full retirement age, in order to “get back what you put in.

According to Lonier, "the basic issue you are dealing with is that people want their money sooner rather than later and find reasons to justify taking the income early." Blame human nature. While sooner may seem better, there are a lot of reasons it may not be the best scenario. For example, if you were to retire at age 62 in 2017, your maximum benefit would be $2,153. However, those waiting until their full retirement age would receive a maximum benefit of $2,687, and those deferring until age 70 would receive a maximum of $3,538. Those deferring until age 70 would receive approximately 65% more in Social Security benefits than if they had started at age 62. Of course, your health, wealth, family history and employment status all come into play when making this decision as well.

Myth #2: It's best to take it early, since you don't know how long you will live.

Longevity continues to increase. According to a recent study by the University of Michigan, the average woman can expect to live to 85.5; for men, that number has risen significantly to 83. "Yet," Lonier explains, "few people delay taking their Social Security to age 70, which is unfortunate. Those who have not worked or saved as much as others would most benefit from waiting, but most don't have the income to spend while waiting. Thus, many are forced to take Social Security early, as it is their only source of income." Unfortunately, by taking it early, you are not able to get more over time.

Myth #3: By taking Social Security benefits early, you will pay less in taxes.

There's a widespread notion that retirees should first tap into Social Security and defer withdrawing from their IRAs, 401ks and other private savings vehicles. However, by reversing that strategy, some retirees may be able to lower the taxes they pay over their lifetime. Social Security benefits are taxed at a "preferred rate,"

Photo © Can Stock Photo Inc./zimmytws

which means at least 15% of your Social Security is received income tax free. With your IRA or 401k, all withdrawals will be taxed at 100% of the amount withdrawn.

In addition, some retirees who take both Social Security and IRA distributions before age 65, find themselves facing the "tax torpedo" in which your Social Security benefits get taxed, moving the retiree into a higher tax bracket.

According to Lonier, "there really are some things that are in the realm of control of retirees that really matter, such as using some savings early on to increase the tax advantaged benefits you get in the later years." Thus, if you can tap some savings first, retirees can boost their Social Security income later in retirement and lower their taxes.

Myth # 4: You understand the "break-even point" and still decide it's best to take Social Security early.

The break-even point represents the age at which a retiree taking benefits before age 70 would begin to have less money over their lifetime than if that same retiree had waited till age 70. But, the reverse is also true: the break-even point represents the age at which the retiree waiting until age 70 begins to have more money over their lifetime than if he or she had elected to take benefits sooner.

"A lot of people think they won't live to the breakeven point," Lonier says. "However, many are on the high side of their life expectancy, even if they have a chronic illness." That's why "it's worth factoring in the benefits of tax-advantaged dollars from Social Security

4 0 August 2017 0 WILLIAM PENN LIFE