Should You Draw Your 401(k) to Delay Social Security?
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- Опубликовано: 1 мар 2024
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Are you wondering whether to tap your 401k or IRA before claiming Social Security? This video dives deep into a case study using RightCapital to help you maximize your benefits. Get ready for an in-depth analysis that will have you reaching for your spreadsheet. If you want to make the most of your retirement planning, hit the subscribe button now!
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How you choose to withdraw your retirement funds can significantly affect the taxes you pay and how long your savings last. Should I pull from first -- my Traditional IRA, ROTH IRA or Taxable Account?
In this video, we look at a realize case study to help make this important decision - and we even give you free access to the same tool financial advisors use. This information is particularly useful for those nearing retirement or who have just retired, offering crucial tips to maximize your retirement savings.
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ABOUT ME
I’ve always been passionate about personal finance, investing, real estate, and helping people find the freedom to live their life with purpose. But when my dad died in 2015, I tried to help my Mom find an advisor to sort out her finances. Instead of a helping hand, I found an industry of financial advisors dominated by glorified salespeople working on commission - pushing products that were not in my mother’s best interest. Or advisors with minimums that shut-out all but the ultra wealthy. Disappointed with the options, I took matters into my own hands and launched Foundry Financial, a wealth management firm with transparent pricing that specializes in helping provide clarity around money - so you have the confidence to make smart decisions.My goal is to help a million people retire without worry!
📅 THE BASICS OF RETIREMENT PLANNING
Retirement planning has several steps, with the end goal of having enough money to quit working and do whatever you want. Our goal is to help people master retirement and retire without worry.
Step 1: Know when to start retirement planning. When should you start retirement planning? The earlier you start planning, the more time your money has to grow. That said, it’s never too late to start retirement planning. Even if you haven’t so much as considered retirement, don’t feel like your ship has sailed. Every dollar you can save now will be much appreciated later. Strategically investing could mean you won't be playing catch-up for long.
Step 2: Figure out how much money you need to retire, The amount of money you need to retire is a function of your current income and expenses, and how you think those expenses will change in retirement.
Step 3: Prioritize your financial goals. Retirement is probably not your only savings goal. Lots of people have financial goals they feel are more pressing, such as paying down credit card or student loan debt or building up an emergency fund.Generally, you should aim to save for retirement at the same time you're building your emergency fund - especially if you have an employer retirement plan that matches any portion of your contributions.
Step 4: Choose the best retirement plan for youA cornerstone of retirement planning is determining not only how much to save, but also asset allocation. It can make a massive difference in your retirement plan.
Step 5: Select your retirement investments. Retirement accounts provide access to a range of investments, including stocks, bonds and mutual funds. Determining the right mix of investments depends on how long you have until you need the money and how comfortable you are with risk. It’s often helpful to talk with an adviser to discover the right mix of stocks and bonds.
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Did anything surprise you in the analysis?
Do you do analysis of retirement plans? When I went to your website it said that you only work with people that want you to manage their assets? I thought your business was about financial plan analysis?
@@Corgi_Saurusmy job is to create and implement retirement plans, which allows clients to focus on enjoying their retirement.
@@foundryfinancialAhhh gotcha. That's too bad. I can't use an US based retirement manager because I will be retiring outside the US, and by law I can't invest in ETF or index funds... has to be individual stocks or bonds. I have a plan that I've been working and it looks pretty good. I'm really looking for someone to double check behind me and give me a thumbs up or point out things I may have missed.
Did your example show Claire claiming a spousal benefit at 67 but Phil not claiming until 70? I thought the primary insured had to claim before the spouse could. Perhaps I misunderstood your scenario?
@kirks4983 great question. She claims at age 67, but it’s her benefit until Phil claims and then it switches to the higher spousal. Because she waits till age 67 there’s no reduction when she flips to his.
I am 71 years old and started SS at 70. I did not take break-even or longevity into my analysis. I just wanted to make sure my 5-year younger wife would always have enough income to be comfortable. Easy decision...
I am looking at it the same way.
80% of retirees die with most retirement savings intact. Social Security won't get depleted. No inheritance to pass on. If she just put out interest gains or 4% she'll be fine.
@@b.coxemba6799 Yes, she will be fine. The decision was made several years ago to delay SS to 70. Income is now sufficient no matter what happens to other savings. Thanks for the comment.
you are a high character person ... good for you for taking care of your BETTER half ... God Bless and best of luck ...
@@July.4.1776That is because we are both good planners. Thanks for the comment.
People continually equate the age of retirement with the age of collecting social security. You can retire at any age as long as you have adequate finances. And then you can collect social security at a later time to maximize the monthly checks.
I like the idea taking SS later as an inflation mitigation plan.
Great video.
I retired at the height of the pandemic at 63 and took SS right away. It solved all my cash flow problems, short term and long term.
My portfolio had just been kicked in the nuts and using it to bridge my expenses to FRA seemed kind of dumb.
There are just too many variables with large uncertainties to calculate the right answer. I learned years ago that going in the right direction is often the best you can do.
Most base this decision on their health. My dad retired at 62 and took the hit to his SS, my mom retired at her FRA. Dad’s decision was based on his physical decline as his bicep ripped away and after 2 surgeries did not heal properly in his demanding tool&die job. My mom worked a desk as a insurance executive. Her health was much better. Dad’s quality of life has been much better at 74 now.
I'm taking SS early to supplement my military retirement, and my 401k will bridge the difference in my monthly expenses. Can't leave SS to your hiers, but 401k and IRA's you can. I don't want to worry about the ups and downs of the markets. I want to enjoy my go-go years with my better half while we still can.
Enjoy your retirement!
Thanks!
For me it’s simple. It’s an insurance. I’m not using it to get rich but to protect my downside. If I have to use it I can trigger it after 62 and if not, it is an option when things get bad.
I plan to take SS at 62 no matter what, but your video did a nice job showing the ancillary benefits of waiting. My wife will probably keep working until at least 65, so we can wait on hers
Nice discussion. For the not so wealthy, trying for one larger SS check just makes a lot of sense. Knowing that this is more true while drawing from the portfolio, makes it even more desirable.
Wonderful analysis. This has been my test when interviewing potential financial advisors. Thank you for calling it straight!
Thanks!
Thanks for the great content! I am happy that I had good tax diversification when I retired - I was able to delay Social Security to 70 AND do Roth Conversions.
Great content and clearly explained planning information.
Thanks!
THIS is exactly my situation! I ve been a freelancer and so is my wife. This is exactly what we wanted to know. YOU ARE THE BEST!
Glad it was helpful!
Great video!! Thank you!!
Thanks!
thank you for the video ... I retired last month with a similar situation ...
One thing you did that I really liked was keep it relatively simple ... i.e. social security with a 401k only ...
in doing my stress tests I did not concern myself with SS being reduced ... I do not see politicians ever cutting it and then have to face voters ... I do not consider that very likely ...
The one stress test I accounted for which you failed to do completely is what if one spouse dies prematurely and the other lives into their 90's ... (this is what happened to my parents) ... this meant having only one SS income as well as loosing the MARRIED FILING JOINTLY tax advantage ... My WORST case scenario is where I would die in early 60's and wife would live into her 90's ... with just a modest portfolio my first concern is will she have sufficient funds if I am no longer alive ...
For me, the time which makes most sense to take social security is anywhere from ages 65-67 ... how the stock market is behaving will determine when I begin ... by delaying the SS the SS COLA will help counter the effects of inflation ...
One consideration is growth. Typically 401K will be balanced to minimize risk, maximize income toward retirement age, so a Rate of return could be 5%-7%. A delay in SS per year will give you about 8% increase per year. Also there is COLA. The 401K does not have a COLA.
Taxes are interesting, If income is less than $44K, then only 50% of SS is taxable. So limiting the 401K to $44K and maximizing SS will get you close to the $8K per month income. You can fill in the gap with Roth to reach the $8K per month.
I’d rather touch my Roth before withdrawing from 401k
interesting, our situation is a bit more complex, with pensions, taxable investments, real estate rentals.... But my main concern with pushing SS and our pensions back are they die with us, as in not being able to leave that income to our children. I'd hate to pay down our accounts and leave all that money on the table in case of an early demise.
Your scenario very closely aligns with my situation. Wife is 62 drawing SS, I'm 59 working for 2.5 yrs yet. Was planning on taking SS at 62. But! We have 882K in 401k and IRAs. I'm determined to try to break through the million dollar mark by 62 or I won't retire until I do. So I've been putting some thought into drawing on the investments and retirement but wait to claim SS at a later date. It seems like that plays out well with your example.
There are a lot of variables, but it can often be the smart decision - although there is some market risk on the front end.
Good luck ... if you can, i urge you to consider delaying as long as possible ... for me age 67 makes most sense ... the one issue i most want to account for is what happens if i die early ... me delaying social security will make my wife's situation better if i pass early ...
the threat to retirement is inflation, taxes, age and longevity, medical cost, personal cost of living, vs economics of the time your retirement, did you invest in a taxable account or tax deferred account, or use a Roth, account in investment, putting money in a Roth you don't worry about tax, the SSI won't really matter if your investments are giving you your cost of living, with a little extra. and besides their are ways to reduce or eliminate tax upon transferring the remainder or your investments to those family members while you are still alive or after you pass. investing in dividends give you income so you don't spend principal. It's more about saving and investing to live in a quality of life you want to be comfortable, not just retirement, when you are too old to do the things you wanted to do when you where younger.
66.5 and just started SS, not using and in saving at 5%. I have no debt, married, annuity, 401, savings intact. Thinking about quitting and be full time. Scary times in 2024. Just want to know for myself if the time is right to 100% retire. It is a hard decision..
I thought a person couldn’t file for spousal benefits until the spouse claimed. In your example Clare claimsT age 67, 3 years before her husband.
You are correct. I wasn’t clear. She can take her own and then switch to the spousal.
Use margin to grow your assets and pay it with social security
Is this a joke? Leveraging for retirement funds is not bright.
I will retire at 62, with Social Security and a Pension at $60,000 per year plus dividend paying stocks at 15k per year., non retirement stocks...I have money in my 401k and will let that grow and/or will take some out of it for big expenses only. Every retiree must pay attention to Inflation and urge policies that curb Inflation to a more reasonable rate of 2-3% per year .
I want maximum monthly income. So I’ll try to fund myself until 70 to take SS with a combination of continuing to work, use of savings, reverse mortgage, to cover the expenses from 63-70.
I'd rather minimize risk than to maximize lifetime income. They're not the same.
It’s definitely not an easy decision! It’s so individual and there’s a lot of factors to be considered, most importantly, when your expiration date comes.
Nice job putting the math out there for people to consider.
Thanks, Chris! Yeah, there are so many unknowns - it’s tricky.
Liked this analysis. I would add, however, that I’m not sure why you’d analyze 60/40 in both scenarios. Delaying SS is essentially taking funds out of your retirement account to buy a (great-yielding) bond. If you are comfortable with 60/40 drawing SS at 62, you should be comfortable with a much more aggressive portfolio when drawing SS at 70. Would be interesting to see how the “die earlier” scenario looks if you made this adjustment.
Yeah. I was just going fairly conservative, but that’s definitely a possible adjustment and could make a significant difference.
Brilliant comment. I took SS early and I’m 95% SP500, 5% cash.
To reduce risk bought a smaller motorcycle.
If you withdraw SS at full retirement age, and even if you don’t need it, at least you’ll have it instead of the US Treasury. If by chance you die, at least that money, and interest earned, will go to your kids…. They can’t collect your delayed SS. Spending down your savings or paying taxes in advance to maximize your monthly SS check in your mid 80’s ( if mid 80 ever comes for you) seems crazy to me.
I was surprised by the difference in probability of success. I can plan for age 95 but sure hope I go sooner.
Now, that probability of success would probably drop with a more conservative portfolio. There are so many variables.
I plan on retiring at the end of 2025 at age 60. I'll get a pension and also have pre-tax retirement savings. I'm probably getting a p/t job so that will determine my SS strategy. I'll have the 3 income streams (pension, pre-tax, p/t job) and when I end the p/t job, SS will kick in. If I don't get a p/t job, then I'll simply take SS at 62.
its all according to your circumstances....in my case the answer would be yes....if only because you will get a larger raise every year that cola (cost of living adjustment) which will really make a lot of difference thru the years....
Right. That inflation protection is important.
With a paid off mortgage I can live on less than $2000 a month. Social Security will fund my frugal lifestyle. My investments will grow until I am forced to withdraw at 73. If I pass away before then, my heirs will benefit from my savings. Social Security will die with me.
Curious, I will receive a pension (public school teacher) and will be unable to collect my husband's social security (or very, very little survivor benefit). He is 8 years older and I have about 5 more years before I can retire with a full pension. We are planning for him to take his retirement at 62 so we can both enjoy the SS whether we use it for travel or reinvest while I am still working. Anyone else in this situation?
Hey brother can you maybe do a video on the 72t retirement option to get your IRA a little sooner than waiting till 59.5 thanks
That’s actually a great topic. I’ll add it to the list.
Actually working as long as can seems best option financially
But then miss out on experiences like traveling
Thanks for the great tool and the great analysis. I've been executing a similar strategy of waiting to collect. Around 5:40 you say Phil waits until age 70 to file for benefits but Claire starts her spousal benefit at age 67 since there is no benefit in her waiting past FRA. Is that really possible? I thought spousal benefit cannot begin until primary starts taking benefit? This situation applies directly to me so really interested in your response. Thanks.
I sort of misspoke. She can claim her benefit and then switch to Phil’s. It slightly reduces the spousal benefit if she claimed before 67, but only by the amount her personal would be reduced if she claimed early.
Remember Phil is 7 years older than Claire...so when he is 70 , she is still only 63...thus she can start taking ss on her own work record at any age starting at 62 and then at 67, her FRA, she can switch to spousal....Phil will be 74 at that point..approximately 4 years into taking his social security. Of course if she starts taking benefits before her FRA on her work record or Phils...she will not get full 50% of Phil's FRA benefit amount.
I like to maximize my networth. Take SS early.
This is a good question. I"m 60 and retired. I live off rental income, side hustle income and about 500.00 a month from my savings account when necessary. My monthly expenses are pretty low. I don't have a mortgage and I'm debt free. Because of having low monthly expenses, SS can cover all of my monthly expenses and leave me about 600.00 a month left over even if I take it at 62.
I have about 500k in various investments. I will be selling the rental property within the next few years and investing the profits, I was thinking about taking SS between 63 and 64 and living solely off SS. If I do this, my investments and savings hopefully will last a lot longer.
Your question will be less about making the plan work (congrats on that) and more about tax optimization. A great problem to have.
@@foundryfinancial thx. It’s nice to know i’m on the right track.
In one of your videos, you said access to Right Capital is free. How do I get access? Thanks.
foundryfinancial.typeform.com/rightcapital
The taxes are really based on your state and deductions you have. The first $13,610,000 of an estate is exempt from taxes starting in 2024. Also recommend putting your estate/accounts into a trust.
If your money is in an IRA, your heirs are taxed when they withdraw the money -no matter the size of the estate. But, I completely agree on the trust.
@@foundryfinancial good to know so that does limit the taxes significantly since you probably don't have all your money in an IRA.
Can I get the link to do the calculations
foundryfinancial.typeform.com/rightcapital
There are so many more things than just how much money you get when you are Old? It's when you want to Use the money to be able to do what you want while you still can do it? Like Travel? Hike Bike, Camp Hunt Fish ect not just sit in Retirement home in rocking chair?
Did I say there wasn’t? I would completely agree. In fact, I tried to be very clear I’m trying to help you evaluate one specific question. Both scenarios retire at the exact same age.
What if you take it at 62, draw off your retirement, while using your ss check to reinvest in the market?
I have a whole video where I explore that.
The perfect answer is to focus on building multiple income streams for when you retire.
What multiple income streams are you building?
Is it really worth it to have a retirement plan?? Wouldn't it be better to just save 12K a year in a savings account for retirement or take that 12 K a year and invest it wisely?? I am taking steps and studying to become a back end software engineer which means that I will be making over 90K a year.
isn't that still a plan? Investing wisely can mean many things to many people...does wise mean growth, income or value? Does it mean muni bonds, t bills, etc depending on what you need...SS in itself is an ever changing government program with new rules as does 401k programs
I take social security at 62 and invest it in VOO while I draw from my 401K.
You should back test VOO between 2000-2013. Careful you don’t fall to recency bias.
This is math 101. And the chances of a male living to be 95 who was born in 1960 is less than 20%. If you were asked to bet your assets on a plan based on a LESS THAN 20% probability of outcome - you would go all in?!? And it's why these financial plans are worthless in a mathematical sense.
Duh, that’s what he just said.
@@Toomanydays No he didn't. He went right back to using 95 and blowing off the age 80 - which should be the starting point.
Male living to 95 is 20% ? That sounds very optimistic.
Are you a fee only financial advisor?
I am a fiduciary, independent, fee-based advisor. I’m paid my clients - not some fund company.
Are you fee based for AUM?
@anthonyvanburen3998 we charge based on AUM.
@@foundryfinancial okay thank you- I will check out your website.
@@foundryfinancialCan you explain fee-based vs fee-only ? Thanks.
No never u dint want to drain your retirement to delay ss *unless u know my date of death) we are retiring nxt year at 63 takung ss at 65.. all my funds are in tax free investments so not worrued about Any tax after 2024..
Should you use real dollars in hope of more promised dollars? 😂