Financial Abundance

In recent newsletters, I have explained why it is often wise to convert traditional IRA account assets to a Roth IRA.  However, for many people this was not allowed.  In 2010, the $100,000 income ceiling has been removed, allowing everyone to convert IRA funds to a Roth IRA.  2010 also provides the added benefit of being able to spread the income taxes owed on the conversion over two tax years.

What many people are unaware of is that the IRS also offers an “insurance policy” on your Roth conversions.  This insurance can be especially important if you pay taxes on a large amount of converted funds that then proceed to fall dramatically in value, as did the stock market in 2008  This IRS “insurance policy”  is called “Recharacterization.”

Recharacterization allows you undo an IRA to Roth IRA conversion.  If you make the IRA to Roth IRA conversion in January of 2010, you will typically have until October 15, 2011 to undo this conversion through a recharacterization.   Over this 21 month period, if your converted funds fall substantially in value, you would have been better off leaving these funds in the IRA and converting them at their lower value  Recharacterization is the IRS “insurance policy” that allows this.

Here is how recharacterization works:

Let’s assume that you convert $100,000 from your traditional IRA to a Roth IRA in January 2010.  If your marginal tax bracket is 25%, you will be required to pay $25,000 in additional taxes for this conversion.  If the market goes up, the $100,000 grows tax free and you (or your heirs) are never required to pay taxes on this growth.

But what if the market declines, leaving the converted $100,000 with a value of only $50,000 in September, 2011.  You have now paid $25,000 in taxes on an investment that is now worth $50,000.  At this point, your effective tax rate is 50%.  If this happens, you should use the IRS provided “insurance policy” called recharacterization.

Before October 15, 2011, you may put the $50,000 remaining in your Roth IRA back into your traditional IRA account.  You must also file an amended tax return showing this recharacterization.  If done properly, your amended tax return will provide for a refund of the $25,000, in 2010 taxes that was accessed for the Roth conversion.

31 days after you have completed a recharacterization you can once again convert the remaining $50,000 in IRA funds to a Roth IRA.  If you are still in the 25% tax bracket, your tax bill is $12,500 for this new conversion.  If the market skyrockets and the $50,000 grows to $100,000, you will have paid only a 12.5% tax rate on the conversion, based on the new market value.

IRA to Roth IRA conversions have many benefits, as long as you have the financial resources to pay the taxes owed, without having to use IRA funds.  However, the conversion and recharacterization rules are somewhat complex.  If you are exploring a Roth conversion in 2010, be sure to talk to your financial adviser or CPA about the benefits and drawbacks of an IRA to Roth conversion.  After considering all of the facts, if you decide on an IRA to Roth IRA conversion, be sure to re-analyze this decision in September 2011, to see if you should take advantage of the recharacterization insurance policy.

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Is it better to contribute to a traditional, deductible IRA or to a Roth IRA?  As with most personal finance questions, the answer is “it depends.” Let’s look at some guidelines to help you decide.

With a traditional IRA, contributions can only be made if you are under 70½ years old and you and/or your spouse have earned income. The maximum contribution is the lesser of $5,000 ($6,000 if over age 50) or the total amount that you and/or your spouse earned.  If you have a qualified retirement plan, the full amount can only be contributed if your Modified Adjusted Gross Income (MAGI) is no more than $55,000 as a single tax payer or $89,000 as a joint filer.

With a Roth IRA, your Adjusted Gross Income (AGI) must be less than $105,000 as a single filer or $166,000 as a joint tax filer plus you and/or your spouse must have earned income.  Like a traditional IRA, the maximum contribution is the lesser of $5,000 ($6,000 if you are over age 50) or the total amount that you and/or your spouse earned. If deductible IRA contributions are made, the amount that can be contributed to a Roth IRA is further reduced by the amount contributed to a deductible IRA.

The decision on which IRA to use is sometimes obvious:

1. A single filer with an AGI over $105,000 or a joint filer with an AGI over $166,000 who is not covered by a retirement plan can only fund an IRA.
2. If covered by a company retirement plan with a MAGI of over $89,000 but less than $166,000 as a joint filer or over $55,000 but less than $105,000 as a single filer, only a Roth IRA can be fully funded.
3. If you reach 70 ½ and have earned income, only a Roth IRA can be funded.
4. When saving to buy a first home, only with a Roth IRA can up to $10,000 of growth and income plus all contributions be withdrawn, tax and penalty free.

The following are more subtle advantages of Roth IRA plans:

1. For those under 40, the tax free growth combined with the tax free withdrawal of the funds (after age 59½), typically make the Roth IRA a better investment.
2. If funds are required before reaching age 59½, a Roth IRA allows the withdrawal of all contributions, with no taxes or penalty on this withdrawal.
3. For older individuals, a Roth IRA is an excellent way to pass funds to younger generations. The younger recipient may allow these funds to continue to grow tax free by withdrawing inherited Roth funds tax free over their lifetime

When none of the above apply, the decision of funding a Roth IRA or a traditional, deductible IRA must be made by analyzing your current tax bracket, what you believe will be your future (retirement years) tax bracket and whether you expect to consume the retirement funds or pass them to future generations.  If you need help making this decision, consult with your financial planner or tax adviser.

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In 2006, the Pension Protection Act was signed into law.  A key provision of that act was the elimination of the $100,000 earnings ceiling for an IRA to Roth IRA conversion.  Until now, only taxpayers with an Adjusted Gross Income (AGI) of $100,000 or less have been allowed to convert funds from their IRA accounts into a Roth IRA account.  However, thanks to this 2006 legislation, on January 1, 2010, anyone may transfer funds from an IRA account to a Roth IRA, regardless of income.

When IRA funds are converted to a Roth IRA, taxes must be paid on the amount of (pre-tax) IRA contributions that are converted.  However, another “gift” from the Pension Protection Act of 2006 is the ability to delay this tax liability on funds converted in 2010.

In 2010, if you convert $100,000 of taxable assets from your IRA to your Roth IRA, you may choose to pay taxes on an additional $100,000 of income for tax year 2010.  However, you also have the option of paying no additional income taxes on the converted amount in 2010.  Instead, you may pay income taxes on ½ ($50,000) of the income in tax year 2011 and on ½ in tax year 2012.

After 2010, you may continue to convert IRA funds to Roth IRA funds, regardless of income.  However, from 2011 on, taxes on the converted taxable amount must be paid in the tax year during which the conversion is made.

Are there any reasons to not use the three year option for a 2010 Roth conversion?   An obvious reason would be if you have very little income in 2010 and expect significantly more income in 2011 and 2012.  A less obvious reason may be the possibility of future federal income tax increases.

The current administration has proclaimed that it will raise taxes on the “rich,” which it defines as couples with incomes of $250k or more.  One way this will be accomplished is by allowing the current “tax cuts” to expire at the end of 2010.  When these tax cuts expire, income taxes on all income level will rise in 2011 and beyond.

Since 2010 is an election year, congress may not be anxious to pass additional tax increases in 2010.  However, with our enormous and increasing budget deficit, a tax increase in 2011 appears likely. Depending upon your expected income in 2010 – 2012, you could pay less in taxes on your IRA to Roth IRA conversion by declaring the full amount of income in 2010, especially if income taxes increase dramatically in 2011 and beyond.

If you are considering retirement in the near future, it may be beneficial to retire at the end of 2010.  This could allow you to convert a substantial amount of IRA savings into a Roth IRA.  With the three year option, the Roth conversions would be taxed in 2011 and 2012, when work related income has ceased.  This approach could minimize the amount of taxes owed on the Roth IRA conversion.

Do not do an IRA to Roth IRA conversions without having enough funds, outside of the IRA, to pay the taxes owed.  If the taxes are taken out of the IRA, advantages of a Roth conversion will be substantially lost.  When IRA funds are used to pay the taxes owed on the conversion: 1) taxes are paid on funds being used to pay taxes 2) If you are under 59 ½, a 10% penalty will be assessed on IRA funds that are used to pay taxes and 3) the tax deferred and tax free account funds are reduced in value by the amount of taxes and penalties paid.

2010 provides an opportunity for millions of new taxpayers to consider the advantages of converting IRA funds into a Roth IRA.  If you are unsure of whether this conversion would be beneficial, talk to your financial planner or tax account and ask them to help you make this determination.

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Does your company have a “use it or lose it” policy with respect to your vacation or sick leave?  If so, the IRS has recently issued new guidelines that can help you save more for retirement when you are unable to use all of your allotted annual leave.

In September, the IRS released Revenue Rulings 2009-31 and 2009-32 to clarify steps that employers can take which would allow employees to contribute unused vacation and sick leave to 401(k) and other qualified retirement accounts.  These IRS rulings describe how employers can permit employees to convert the value of their unused leave into contributions to tax-qualified retirement plans.

From an employee morale viewpoint, a “use it or lose it” policy may not be in a company’s best interests.  While the intention behind the policy is to insure that employees take their allotted time off, it is often difficult to do this every year.  This is especially true of valuable, longer term employees who have accumulated several weeks of annual paid leave.

The repercussions of a “use it or lose it” policy is that valuable employees are often “forced” to take time off near the end of the calendar year, a time when most companies need every available employee to meet their year-end goals.  The new IRS rulings allow companies to offer an alternative that benefits both the employee and employer.

The new IRS rulings apply to qualified retirement plans, including 401(k)s, Keoghs, profit-sharing plans and SIMPLE IRAs.  The rules can apply to unused vacation, sick leave or personal days that accrue either annually or when an employee leaves a job.

The rulings allow the employee to contribute the entire amount of their unused leave to the company’s retirement plan, unless the employee has already exceeded the annual plan contribution limit.  For 401(k) plans, the 2009 contribution limit is $16,500, or $22,000 for those over age 50.  For a SIMPLE IRA, the 2009 contribution limit is $11,500 or $14,000 for those over age 50.

Companies can opt to pay workers for unused leave only if is deposited into their qualified retirement plan.  This provides a positive alternative to the “use it or lose it” approach.  Instead of being forced to take time off in the critical end of year time frame, employees have the option of saving their unused leave in their retirement plan.

Employers that don’t currently pay workers for unused leave may want to consider this approach.  Putting unused leave into an employee’s retirement account compensates valuable workers and encourages retirement savings with no increase in base pay.

Another benefit of adding this alternative is that neither the employer nor the employee will pay FICA taxes on the contribution, since the payment is to a qualified retirement plan.  An employer who offers this benefit must offer it to all plan participants.  However, the employer is not required to offer it every year. The employer can also prorate or limit the amount of leave for which they will pay.

If you own a company that has a 401(k) or SIMPLE IRA retirement plan, you may want to consider modifying your plan to allow for unused paid leave to be put into the qualified retirement plan.  As a business owner in trying economic times, you are likely very concerned about keeping company morale high.  You are also aware of the correlation between high employee morale and high employee productivity.  Providing a method for your employees to retain their earned leave time plus save for retirement could be a major morale booster for your company

If you are an employee of a company that has both a qualified retirement plan and a “use it or lose it” vacation policy, talk to your company management or personnel department about these recent IRS rulings.  They may not be aware of how the new IRS rulings can provide a new alternative to “us it or lose it.”

Our nation must begin to save more for our long term health and security.  Hopefully, many companies will take advantage of this opportunity to help employees save more for retirement.

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I am often asked, “What should I do with a 401(k) or 403(b) retirement plan that I had with a former employer?”  Most former employees are allowed to keep their funds in the former employer’s plan or “roll over” their former plan assets into a new employer’s 401(k) plan.  However, for many people, the best option may be to roll over the retirement plan funds into an IRA.

Let’s look at some of the areas where having an Individual Retirement Account may be advantageous to continuing with your former employer’s retirement plan

Diversification – When you roll over your retirement plan assets to an IRA account with a discount broker such as Schwab, Fidelity or TD Ameritrade, your investment options become virtually unlimited.  For a small trading fee (typically under $10 per trade), you can have a well diversified portfolio consisting of Exchange Traded Funds (ETFs) and mutual funds.  Some retirement plans have such limited choices that providing adequate diversification is virtually impossible.  TIAA-CREF is an example of a large sponsor of retirement plans with such limited investment choices that it is difficult to produce a well diversified portfolio.

If your 401(k) has a good selection of mutual funds from Vanguard or Fidelity, you can roll your IRA over to a mutual fund account with Vanguard or Fidelity.  Not only will the funds in your 401(k) be available, the entire family of funds will be at your fingertips.

Fees – Fees are a significant contributor to the success or failure of an investment portfolio.  Every employer must disclose the retirement plan’s annual fees to the plan participants.  If your 401(k) plan is with a large employer, the 401(k) fees are likely fairly low.   If your employer is a small to medium sized companies, annual fees could be over 1%.  Combining this fee with the typical 1%+ annual operating cost for mutual funds in the plan, your plan’s total annual fees could be as high as 2-3%. 

At most discount brokerages, a well diversified, index-based ETF portfolio can be developed for approximately $100 in trading costs. Most index-based ETFs have annual operating costs of 0.25% or less.  Thus, the IRA option could have total annual fees that are over 2% less than the total fees of many 401(k) plans.

Investment Management – Larger employers often provide 401(k) investment advice to their employees.  However, when you leave the employer, you may find that this advice is no longer available.  Smaller employers typically offer both limited investment options and limited investment advice, with no advice available for past employees.

Fee only asset management is available to provide investment management advice to investors that have neither the time nor interest to manage their own portfolio.  Annual fees for fee only asset management may be as little as 0.75% of the assets under management.  If your asset management firm uses indexed based ETFs, the total annual costs of both management and fund operating expenses may be just 1% or less.  With this approach, you can have individualized professional investment management advice with total fees that are less than ½ of many 401(k) plans.

If you have well diversified investment options, a low cost retirement plan and the time and interest to personally manage your plan, there may be no need to roll it over to an IRA.  However, if diversification, fees or the investment management advice supplied by your former employer’s plan are not adequate, you will likely find that the IRA roll over option is the better approach.  

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Let’s explore some little known tips on Social Security benefits that could provide thousands of additional retirement dollars to you or your parents. 

Did you know that If two spouses are 64 years old, there is a 40% probability that at least one spouse will live to be over 90 and an 80% probability that at least on spouse will live past age 82?  If both spouses are in good physical shape, these percentages go even higher.

Let’s assume that both spouses are 66, their full retirement age (FRA). If one spouse has earned more than double the Social Security benefit of the other spouse, the lower earning spouse may claim a Social Security benefits that is 50% of the higher earning spouse’s benefit. 

When the higher earning spouse waits until age 70 to begin taking benefits, the combined lifetime Social Security benefits may be significantly greater.  At age 70, the higher earning spouse will receive 132% of the benefit they would receive at age 66 plus four years of cost of living adjustments (COLA).  For the lower earning spouse to begin receiving benefits, the higher earner can “file and suspend” their Social Security benefits until they reach age 70.  At the FRA age of 66, the lower earner will receive 50% of the higher earner’s full FRA benefits. 

If the higher earning spouse dies first, the survivor can claim the full Social Security benefit of their spouse.  Thus, for the rest of the survivor’s life, they will get 132% of their spouse’s FRA Social Security benefits, plus annual cost of living (COLA) increases.  Let’s look at how the “file and suspend” strategy can increase the total Social Security benefits over the two lifetimes.

Assume that the higher earning spouse will receive $2500/ month at their FRA age of 66.  Let’s also assume that one spouse will die at age 80 and the other will live to age 90.  Remember, there is at least a 40% probability of one souse living past age 90.

With a 3% annual inflation rate, if both spouses begin taking Social Security benefits at age 66, their total income with the previous assumptions will be approximately $1,373K.  If the higher earning spouse files and suspends payments until age 70, the total income that the couple would receive over the same period is approximately $1,577K. 

By the higher earner waiting until age 70 to begin receiving benefits, the couple’s combined income is increased by $184K, with the surviving spouse receiving $171K more over their final 10 years of life.  Obviously, this scenario provides the highest possibility of working if both spouses are in good health at age 66. 

While the above approach may not be suitable for you, it demonstrates the importance of understanding the complex rules of Social Security.  It is important to know the rules so you can decide how to maximize your Social Security benefits. 

What if you have already begun taking Social Security and now realize that you should have waited.  If you are under age 70, Social Security provides a “do over” capability.  Next month, we will explain this “mulligan” approach in more detail.

When you are ready to start your Social Security planning, I recommend that you read Getting Started in a Financially Secure Retirement, written by my friend and colleague, Henry (“Bud”) Hebeler.  If you still need help in deciding your Social Security strategy, give me a call and I will be happy to provide complimentary Social Security planning support.  Proper Social Security planning is an important piece of maintaining an abundant retirement.

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There is a simple, easy to use tax reduction tool, currently available to 90% of all US taxpayers.  In 2010, this tool will be available to everyone.  Unfortunately, only 19% of all taxpayers currently take advantage of it.  Do you know what it is?

If you guessed the Roth IRA, you’re correct.  Like a traditional IRA, a Roth IRA is a personal savings account in which funds grow tax free.  Unlike a traditional IRA, when Roth IRA funds are withdrawn, in a qualified withdrawal, no taxes are due on either the funds or their investment growth. 

With the growing federal deficit, it is probably safe to assume that your tax bracket in retirement will be close to your present tax bracket.  If so, the Roth IRA will always yield a higher after tax return than a traditional IRA.  This holds true even when if you invest the tax savings from your traditional IRA contribution.    

Another advantage of a Roth IRA is that there are no mandatory distribution requirements.  With a traditional IRA or a 401(k) plan, you must begin taking withdrawals and paying taxes on the withdrawn funds at age 70 ½, even if you do not need these funds.

Because there are no mandatory withdrawal requirements with a Roth IRA, they can be an excellent estate planning tool.  If you do not need your Roth IRA funds during retirement, the Roth IRA funds can be passed to your heirs.  The inherited Roth IRA funds remain income tax free when withdrawn by your heirs.  An inherited Roth can have a mandatory distribution schedule that is based on the expected lifetime of the heir.  This allows most of the Roth IRA funds to continue to grow tax free throughout a second lifetime. 

If you earn less than $105,000 as an individual tax filer or less than $166,000 as a joint filer, you can annually contribute up to $5,000 ($6,000 if age 50 or over) to a Roth IRA, even if you are covered by a qualified company retirement plan. 

Many financial advisors recommend that you put the maximum amount possible into a tax deferred retirement account, such as a 401(k) or 403(b).  However, it is often wiser to put the maximum amount that your company will match in the tax deferred retirement account and put the next $5,000 ($6,000 if age 50 or over) of retirement savings into a Roth IRA. This approach will maximize your after tax retirement funds and maximize your withdrawal options during retirement.

Converting tax deferred funds from a traditional IRA or 401(k) to a Roth IRA is often wise, especially if you may not need all of your tax deferred funds during retirement.  Currently, if your annual income (AGI) exceeds $100,000, this type of conversion is not permitted.  However, this income limitation for a Roth IRA conversion will soon disappear.  

Starting in 2010, everyone will be able to do a Roth IRA conversion, regardless of income level.  With a Roth IRA conversion, you must pay current taxes on the amount converted.  Once these funds are converted, you never pay income taxes on these funds and their investment gains again. 

There is an additional incentive to convert funds to a Roth IRA in 2010.  Taxes owed on funds converted in 2010 can be spread over two tax years.  In 2011 and beyond, 100% of the conversion taxes must be paid in the year of the conversion.

A Roth IRA conversion should only be considered if you have adequate additional savings to pay the taxes due without using the converted funds.   If you will need any of the converted funds within five years, do not convert these funds.  Funds withdrawn within five years will likely be considered a non-qualified distribution, requiring the payment of a 10% penalty on any funds withdrawn.

With the enormous expansion of government debt, it seems likely that income and capital gain tax rates will soon rise.  Whether you are eligible now, or must wait until 2010, the benefits of having a Roth IRA should be considered as part of your personal financial plan.  

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If you are a small business owner who provides a 401(k) plan to your employees, is the cost of providing this plan justified? If you are an employee of a company that offers a retirement plan, should you participate in the plan? In our current economic environment, it is more important than ever to carefully consider your answers to these questions.

Business Owners

As a business owner, you feel a responsibility to provide the best possible benefits for your employees. However, with current economic conditions, many small businesses can no longer afford to provide employer matching funds for their company sponsored retirement plans. Even without employer matching, you may still feel that it is your duty to provide your employees with a 401(k) plan.

As a small business owner, the types of 401(k) plans that are available are often limited. To keep the plan affordable, your plan may only provide a small number of mutual funds from a single family of funds. Typically, these mutual funds will have a front end load (sales charge).

There are three problems with this type of 401(k) plan:

1. A front end load provides for an immediate reduction in the investment returns for you and your employees.
2. If the number of mutual funds is limited, you may not be able to provide adequate diversification for you and your employees
3. The plan sales person may not have the training, knowledge and investment skills that are required to provide comprehensive investment advice on how to safeguard and grow your 401(k) investments.

If your plan has some or all of these drawbacks, examine your employee’s 401(k) contributions. You may find that most employees are contributing less than $5,000 per year to the plan. If that is the case, your employees will get the same tax deferred benefits and much greater investment flexibility with a traditional IRA.

If your 401(k) contributions are more than $5,000 per year, you must weigh your reduced amount of tax deferral against the cost and limitations of your plan. If the 401(k) is mainly for your employees, you may be doing them a favor by eliminating the company plan.

Employees

If your company offers a 401(k) plan, and you are under age 50,you may contribute up to $16,500 per year to the 401(k) plan plus an additional $5,000 per year to a Roth IRA. Full Roth IRA contributions can only be made if your AGI (Adjusted Gross Income) is under $105,000 as a single tax payer or under $166,000 as a joint tax filer. Let’s assume that you qualify for both a 401(k) and a fully funded Roth IRA.

If your company offers a 401(k) with an employer match, try to contribute the full amount that the employer matches. This “free money” from your employer provides an immediate 100% return on your 401(k) investment.

Now, let’s explore your options once you reach the employer match or if your company offers no employer matching funds. If your 401(k) plan comes with a wide range of no load investment options and skilled investment advice, it is likely wise to fund your 401(k) plan to the maximum amount possible. However, if your company provides a limited number of mutual funds with sales charges (loads) and offers limited (or poor) investment advice, you may want to fund a Roth IRA up to the $5,000 ($6,000 if you are over age 50) maximum, before funding your 401(k).

A Roth IRA can be established with a discount brokerage firm such as Schwab, Fidelity or Vanguard. You may then use no load, low cost mutual funds or exchange traded funds (ETFs) for your investment vehicles. You or your investment adviser can establish a diversified portfolio that meets your investment goals and matches your risk tolerance levels. Even though a Roth IRA contribution is not tax deductible, the contributions and investment returns can be withdrawn tax free during retirement.

Many larger companies have excellent 401(k) plans, offering low cost, no load funds, extensive diversification and skilled investment advice. However, if you own or work for a company where this type of plan is not available, consider your options. They are not as limited as you might think.

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With recent market declines, many people have had their retirement savings substantially reduced. With less retirement savings, the viability of Social Security has become more important than ever for both younger and older employees.

Will Social Security be around when you retire? In is my opinion that Social Security will survive and be available, even for employees that are just entering the workplace. Social Security is a “sacred cow” for all politicians that wish to be re-elected. Because of this, it will survive, regardless of the future costs and its associated debt. However, at some point, the cost of maintaining the present Social Security benefits will be overwhelming.

To offset the increasing costs of Social Security, the “Full Retirement Age” for younger workers will likely be extended beyond the current maximum of age 67. The maximum level of earning taxed will continue to increase beyond the current $106,800 and the combined Social Security tax rate of 12.4% will likely increase. There may also be “privatization” of a portion of Social Security taxes. “Privatization” would allow for government transference of some of the Social Security investment risk, as well as allow for inflation adjustments to be discontinued on the “privatized” benefits.

With Social Security changes likely, what should you do to maximize your retirement income? If you are under age 50, plan for your retirement as if Social Security benefits will not be available. While this scenario is highly unlikely, increasing your retirement saving will provide for a more abundant retirement, regardless of what happens to Social Security.

If you are over age 50, your Social Security benefits will likely be unaffected by any future changes. However, since the Social Security rules are so complex, be sure you understand all of the variables before you begin taking benefits. As an example, many people believe that, if they are fully retired, they should automatically begin taking Social Security benefits at age 62. However, this decision could cost them thousands of dollars in reduced benefits.

Let’s look at a few strategies on when to take Social Security benefits.

Strategy 1 – If you will have any meaningful employment between age 62 and your Full Retirement Age (FRA), wait until your FRA to begin your Social Security benefits. Any income above $14,160 annually will reduce your Social Security benefits by one dollar for every two dollars that you earn above that limit.

The next two Strategies assume that you are in good health and that you do not require early Social Security benefits for your financial survival.

Strategy 2 – Even if you are fully retired, start taking your Social Security benefits at your FRA instead of age 62. By doing this: 1) You receive annual Inflation adjustments based on benefits that are 33% higher; 2) You receive more total benefits if you live beyond age 77; 3) If your benefits are greater than your spouse’s and you predecease your spouse, your spouse can receive a 33+% larger payment.

Strategy 3 – If your spouse is younger and will receive a significantly lower benefit, consider waiting until age 70 to collect your benefits. This will provide you with a benefit that is 32% greater than your FRA benefit and at least 76% higher than your age 62 benefit. More importantly, if you predecease your spouse, he/she will receive this increased benefit for the remainder of their lifetime, if they wait until their FRA to begin taking Social Security benefits.

These three simple strategies demonstrate the importance of making an informed decision concerning Social Security benefits. The approach that is best for you will depend upon your health as well as any spousal age and income differences. As part of your abundant retirement planning, get professional advice on the vagaries of Social Security before making your decision on when to begin taking benefits. Doing this may provide thousands of extra retirement dollars for you and your spouse.

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