How do you generate income after you retire?
That’s the question many people face as they near the end of their career. Two income streams that many retirees use are IRA distributions and Social Security benefits. The question is, when is the best time to tap these income streams?
Some people may have a significant amount in their IRA and decide to utilize that account to generate retirement income. Others, however, may think it’s better to file for Social Security as soon as possible rather than take distributions from an IRA. If you need income in retirement but don’t necessarily need income from both sources, how do you decide which to use first?
Why tap into your IRA?
Social Security actually rewards people for delaying their benefit filing as long as possible. Most people reach their full retirement age (FRA) sometime between their 66th and 67th birthdays.1 However, you can file as early as age 62. But if you decide to file as soon as possible, you may see a decrease in benefits.
On the other hand, if you decide to wait past your FRA, you may receive a permanent 8 percent credit on your benefit amount for every year that you delay filing up to age 70. As an example, if your FRA is 66 and you file at age 70, you will receive a total increase of 32 percent on your benefits.2
By utilizing distributions from your IRA, you may be able to delay your Social Security filing and permanently increase your benefits.
Why file for Social Security first?
An IRA allows you to increase your assets on a tax-deferred basis and gives you a certain amount of liquidity that you can take advantage of. You may want to keep your funds in the IRA to maximize the account’s tax advantages. You also may want to maintain liquidity to pay for unplanned expenses, such as medical costs or long-term care.
Additionally, your primary goal may be to leave a legacy behind for your loved ones. If so, you may be reluctant to take distributions from your IRA. You can still accomplish your goal by filing for Social Security benefits before taking IRA withdrawals.
Planning for retirement can be a difficult process. The only way to truly answer these questions and make sure you are on track to meet your retirement goals is to consult with a professional. A financial professional can give you the advice you need and help you stay on track so you can enjoy your retirement years.
Unsure of how best to structure your retirement income? Let’s talk about it. Contact us at Baacke Insurance Services today. We can help you evaluate your objectives and needs and 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
16161 - 2016/10/18