Smart Social Security Strategies

According to a recent study, 78 percent of pre-retirees felt that they needed to know more about strategies for sustainable income in retirement. Retirement income has traditionally been seen as a “three-legged” stool comprised of Social Security, employer pensions and personal savings and investments.

With traditional pensions becoming rarer and people spending more time in retirement, maximizing the other two legs are becoming even more critical.

Last year, more than 59 million Americans received $863 billion in Social Security benefits. Social Security benefits made up 90 percent of retirement income for 22 percent of married couples and 47 percent of singles.

This means that almost half of all single beneficiaries of Social Security rely on it for virtually all of their income in retirement.

With more than 10,000 of the 75 million baby boomers retiring every day, this number will continue to rise.

In this same study, only 10 percent knew a safe retirement savings withdrawal rate, or the rate you can spend your savings without using it all up.

Eighty-eight percent didn’t know or overestimated the rate they could safely withdraw.

In the mid-1990s the “4 percent rule” was introduced, becoming the standard retirement withdrawal rate for retirees in order to help make sure their money could last. So for a nest egg of $500,000, your 4 percent withdrawal limit is $20,000 a year.

This rule of thumb, however, has been widely debated since the 2008 financial crisis. If there is a prolonged market downturn and you start to withdraw money, the danger of running out of money increases.

Then what is a safe withdrawal rate for your nest egg in retirement?

How can you ensure that your savings last as long as possible and still enjoy your quality of life?

There is no easy answer and the number obviously is based on how much you need and how much you have.

According to research from the Journal of Financial Planning, by coordinating your overall retirement financial plan with Social Security strategies, your investment portfolio can be extended anywhere from two to 10 years.

There are a variety of Social Security strategies that you can use, such as starting benefits at 62, waiting to full retirement age (FRA) or 70, and even ones such as using “Spousal and Survivor Benefits” or “File and Suspend.” Unfortunately when you choose one strategy, you won’t be able to switch, which is why synchronizing with your financial plan beforehand is critical.

In order to get a more accurate picture of a retiree’s income, the Journal included Social Security and taxes into their study.

They found that a strategy that includes delaying benefits until 70, combined with a tax-efficient withdrawal approach, optimal asset allocation, and proper drawdown sequence, resulted in a portfolio lasting 30 years with far from minimal income levels!

Coordination can be complicated, and for many intimidating.

Thankfully technology has helped the financial planning and sustainable retirement income process.

Go to artofthinkingsmart.com/plan to get a free financial plan coordinated with Social Security strategies.

david@artofthinkingsmart.com