How Does Social Security Fit Into Your Retirement Income Strategy?

Submitted by Edward JonesPrint Story | Email Story

It might not be on your calendar, but Aug. 14 is Social Security Day. Since it was enacted on Aug. 14, 1935, Social Security has provided some financial support for millions of Americans during their retirement years. While Social Security benefits, by themselves, probably aren't enough to enable you to retire comfortably, they can be a key part of your overall retirement income strategy – if you use them wisely.

To help you make decisions about Social Security, you will need to answer these questions:

When should I start taking my benefits?
You can take Social Security once you reach 62, but if you wait until your full retirement age, which will probably be between 66 and 67, you'll get much bigger monthly checks, and if you wait until 70, you’ll get the biggest possible payments. Before deciding when to begin receiving your benefits, you'll need to weigh a few factors, including your estimated longevity and your other sources of income.

How should I consider potential spousal benefits? If you are married, or if you're divorced but were married for at least 10 years, you could receive up to half of your spouse's full retirement benefit (offset by your own benefit, and reduced if you claim early). If you outlive your spouse, you could claim survivor benefits, which can provide either your own benefits or 100 percent of your deceased spouse's, whichever is larger. Consequently, the higher-earning spouse might want to postpone taking benefits for as long as possible to maximize the survivor benefit.

How much can I earn without reducing my Social Security benefits? If you are younger than your full retirement age and you are receiving Social Security, the Social Security Administration will withhold $1 from your benefits for each $2 you earn over a certain threshold (which, in 2019, is $17,640). For the year you reach your full retirement age, your benefits could be withheld by $1 for every $3 you earn over $46,920. But once you reach your full retirement age, you can earn as much as you want without your benefits being withheld, although your benefits could still be taxed, depending on your income.



How much of my pre-retirement income will Social Security replace? Generally speaking, you should expect Social Security to replace slightly more than a third of your pre-retirement income. However, the higher your income during your working years, the lower the replacement value of Social Security will be.

What other sources of retirement income should I develop? Contribute as much as you can afford to your IRA and your 401(k) or similar employer-sponsored retirement plan. You may want to consult with a financial professional, who can look at your entire retirement income picture and recommend moves to help you achieve the lifestyle you have envisioned for your later years.

Keep in mind that your decisions about Social Security filing strategies should always be based on your specific needs and health considerations. For more information, visit the Social Security Administration website at socialsecurity.gov.

One final word: You may have concerns about the stability of Social Security. While no one can predict the future, many potential solutions exist to put the program on more solid footing. Consequently, try to focus on the actions you can control.

This article was written by Edward Jones for use by your local Edward Jones financial advisor. Courtesy of Rob Adams, 71 Main Street, North Adams, MA 01247, 413-664-9253.. Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation. For more information, see EdwardJones.com.

 

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Be Creative When Withdrawing from Retirement Accounts

Submitted by Edward Jones

Like many people, you may spend decades putting money into your IRA and your 401(k) or similar employer-sponsored retirement plan. But eventually you will want to take this money out – if you must start withdrawing some of it. How can you make the best use of these funds?

To begin with, here's some background: When you turn 70 1/2, you need to start withdrawals – called required minimum distributions, or RMDs – from your traditional IRA and your 401(k) or similar employer-sponsored retirement plan, such as a 457(b) or 403(b). (A Roth IRA is not subject to these rules; you can essentially keep your account intact for as long as you like.) You can take more than the RMD, but if you don't take at least the minimum (which is based on your account balance and your life expectancy), you will generally be taxed at 50% of the amount you should have taken – so don't forget these withdrawals.

Here, then, is the question: What should you do with the RMDs? If you need the entire amount to help support your lifestyle, there's no issue – you take the money and use it. But what if you don't need it all? Keeping in mind that the withdrawals are generally fully taxable at your personal income tax rate, are there some particularly smart ways in which you can use the money to help your family or, possibly, a charitable organization?

Here are a few suggestions:

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