Should you delay taking social security payments? When you’re retired, should you still try to “save” money each month and put it in a bank account just like you did before you retired?
Those are just a couple of the questions we address in today’s show that were prompted from what our clients are asking us.
As we meet with our clients, we enjoy learning what questions they have and what issues are concerning them. So today, our episode is devoted to discussing some of the common questions we’re hearing right now from our clients.
Please read below and listen in as we cover some important topics and maybe we’ll hit a topic that’s been on your mind, too.
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Insights From Client Questions
1. It’s comforting but not necessary to keep building up your bank account balance in retirement.
Some folks want to accelerate money out of their retirement accounts so they can build up their bank account in retirement. While that may be comforting, it could trigger a tax. We do always recommend retired clients have funds set aside in a bank account to cover short term unexpected expenses. This provides comfort in knowing they can get to it without calling us or anyone to get access to that capital. However, once that amount is achieved (which is different for everybody), then the rest can stay in retirement accounts, not trigger taxes due, and possibly continue to grow.
2. We’re living longer, on average, so it may be smart to delay Social Security payments.
If you’re a married couple where both spouses are 65, there is now a 50% chance one will live to 92. There’s a 25% chance that one will make it to 97. As we look at how Social Security payments work and with 10-year Treasuries paying a historically low rate, the 8% increase you receive for each year you delay taking Social Security payments looks attractive. It’s attractive particularly if you look at the time value of money and you expect to live into your 90s. Each person’s situation is different and we’d have to run the numbers for you to see if this strategy makes sense.
3. When one spouse dies, the surviving spouse may be eligible for a survivor’s benefit.
There’s an interesting twist here. The surviving spouse may be eligible to receive the Social Security benefits of the deceased spouse. And in this case, if the deceased spouse delayed their benefits, the surviving spouse might benefit from the 8% annual increase in benefits mentioned in number 2 above. In other words, it’s worth having a conversation with your financial advisor about when to start receiving your Social Security payments so you can plan for/model a variety of scenarios.
4. You might be able to tap your IRA for a short-term “bridge loan.”
Let’s say you’re buying a new house and you need the money from selling your current house to help make the new down payment. But there’s one small problem–you don’t close on selling your current home until 45 days after you are buying the new home. One option is you could take the money from your IRA. And, here’s the key, you have to put the money back into your IRA within 60 days or else you face tax penalties. We don’t necessarily recommend this strategy but it has come up recently so we want to mention it.
5. The IRS just got a bit more lenient if you miss a required minimum distribution from your retirement account.
Generally speaking, when you turn 70 1/2, you have to start taking distributions from your retirement accounts. If you somehow forget to take them, you may have to pay a penalty to the IRS. Now, however, the government has gotten a bit more lenient on paying the penalty. According to Morningstar, “The IRS can waive this penalty on a case-by-case basis ‘if the payee described in section 4974(a) establishes to the satisfaction of the Commissioner’ that ‘(1) The shortfall…in the amount distributed in any taxable year was due to reasonable error; and (2) Reasonable steps are being taken to remedy the shortfall.'” We work very closely with our clients to make sure they don’t miss a required distribution.
Bill Keen on retirement planning…
One of the greatest risks that we see to retirement income is living longer than anticipated.
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Got a question or comment? Email it to me and we’ll get back to you or call our office at (913) 624-1841.
Bill Keen is the founder and CEO of Keen Wealth Advisors, an independent Registered Investment Adviser serving affluent clients preparing for retirement and the host of the Keen On Retirement podcast. Bill brings more than 20 years of financial services experience and holds the CHARTERED RETIREMENT PLANNING COUNSELOR designation. Bill created Keen Wealth Advisors to build one of the country’s most personal and trusted wealth and retirement advisory firms.