Hello!! Hello! Recent news here in CT has our friends in Hartford considering legislation to eliminate the State income tax on social security benefits. Connecticut is one of 13 States that taxes social security; a married couple with an income over $60,000 is subject to this tax.
As we work thru our clients income tax returns, it got me thinking about Social Security. It seems that at least once a month we are evaluating how and when folks should begin receiving Social Security. So what are the factors that go into how and when to take Social Security? Beginning at around age 55 and up to 62 (the earliest you can get Social Security - 60 for widows/widowers) are the prime years to consider-plan- strategize on how to and when to generate retirement income-of course you’ve been working your Restylement™ plan for the last 22 years with us! We use 55 to start as that is the year in which you can withdraw money from your 401k penalty free, as well as the year in which many pension plans, should you be so fortunate, allows for “early” retirement distributions - an IRA on the other hand has a 10% penalty on withdrawals until 59.5! So, what are a few of the key considerations that go into when you should take social security? Since it is tax season and we have a saying “Your taxes affect everything you do, and everything you do affects your taxes” Let’s start with taxes! As with all tax code, the intricacies of how your Social security is taxed is myriad! And requires significant analysis. Consider: Are you going to work while receiving social security, is your spouse? Speaking of spouses what is the age difference and earning history of each? What is the “tax” composition of the asset that will generate the bulk of your retirement income i.e. is it all 401k/IRA? With no tax diversification? as living on Social Security alone just ain’t no fun. Another vital consideration is genetics-longevity and current health, Social Security benefits are a use it or lose it proposition, and like the rest of your money you can do two things with it, spend it now or spend it later. Spend all now party all the time...might not be such a party if you are around later…wait to spend-party later and later does not come, ughh how depressing! So, one of the tough conversations to have is how healthy am I-how healthy can I get? Meaning how long am I going to live and be able to enjoy myself-as the longer you wait to take Social Security the higher your benefits get all the way up to age 70. Lastly, is money! It’s all about the Benjamins! How much do you have and thus how much can you spend in addition to Social Security without running out until you’ve run out of time. How is your money invested-diversified? What is a reasonable expected return after inflation…the black hole of retirement income. We break down retirement spending into 3- 10 year periods, eg. 62-72 the “go-go years” where you are shake your thing and do what you wanna do! Spending is at the high end of reasonable distribution. 73-83 are the “slow go years” slow and low is the tempo, think Continental US travel. 84-94 are the “no-go years” …well maybe a warm weather trip once a year…grandkids come to see you?
As our friends in Hartford ponder tax policy and we gather our own tax papers for the April 18 th filing deadline, it is also good time for those of you 55-62 who are in the retirement income “red-zone” to give thought as well as to how/when will/can I take Social Security. As always, your concerns are our concerns! Any questions? Contact us! Keep the Faith! Talk soon-