Take It And Run

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Gray Easterling
Gray Easterling

Most of the articles you read about social security suggest that you will be better off in the long run by waiting to full retirement age to draw on your account. I recently came across a different view, in the August, 2015 edition of Registered Rep magazine. They gave seven reasons why you might want to consider taking social security sooner. I am going to preview them for you, but, as always, before taking action, consult with your financial, tax and legal advisors. When you retire, you may give up the monthly paycheck that you have become accustomed to over your working career. Taking distributions from social security will give you the stream of income that has become part of your financial life. You may reduce the anxiety of losing steady deposits to your checking account and also be encouraged to budget around the income you receive—just like in pre-retirement days. Another consideration is the “penalty” you incur when you start drawing social security before you retire. When you have earned income above $15,520, your social security is reduced by a dollar for every two dollars earned over the limit. This only applies to the recipient’s income, so if you have a working spouse, his or her earnings will not affect your social security. Also, to reiterate, the penalty applies only to earned income, not interest, capital gains, dividends, pension payments or IRA distributions. There are planning opportunities here. The third talking point alludes to the 8% annual increase in your check if you wait to age 70 to draw social security. This does not take into account the benefit of monthly, but smaller payments or your lifespan, inflation and or investment performance of your assets. The bottom line is that the net difference is most likely substantially less than 8%. Related to this point is the effect of life expectancy on the hypothetical return on delaying benefits. If you don’t live long enough, your wait really does not pay off.

 

There is a tax on social security benefits, but only if you have enough income from other sources to trigger that tax. Even then, only 50 or 85% of the benefit is taxable, depending on income and marital status. So, while social security may not be tax free, it is tax advantaged, compared to interest income or other sources of ordinary income. The most common reason we hear is that people are not confident that social security will be available as we know it in the future and better to take it while we can get it. This is a decision that can be argued either way, but maybe it is better to err on the side of “a bird in the hand”. Finally, an early draw on social security may allow you to defer drawing on other retirement assets for a period of time, with the possibility that they will grow in value. They preserve these assets for medical expenses, family emergencies, future charitable giving or family legacies. For all these reasons, the early draw on your benefits may not be such a bad idea. Just be sure you are making an informed decision and, once made, don’t look back.

 

Somewhat related is a commentary in the Forward magazine on Jeremiah 45:5. “Jeremiah reminds the king and the rest of us that life is a prize. It is a gift. Stuff, ‘great things’? Don’t even think about it. When the chips are down, God knows what we need most—the prize we covet—is one we cannot make or give ourselves. We are lucky to get away with our lives most of the time. The margin of error in winning is probably narrower than we would feel comfortable knowing. Without life itself, there’s really no need for stuff, or great things, or new tools or that fancy computer. Life is a prize and a tender mercy”. Let us give thanks to the Lord our God, for it is right to give him thanks and praise.

 

Although this information has been gathered from sources believed to be reliable, it cannot be guaranteed.  This material is intended for informational purposes only and should not be construed or acted upon as individualized tax, legal or investment advice.  FSC Securities Corporation does not offer tax or legal advice.  The views expressed are not necessarily the opinion of FSC Securities Corporation.  Financial Solutions Group is a marketing name.  Securities, insurance and advisory services offered through FSC Securities Corporation, member FINRA/SIPC.