Last night we hosted a session on Retirement and Social Security Income Maximization Strategies. I personally refrained from speaking other than to introduce others and answer questions because we had an expert from out of town speaking. Stuart (from our affiliate office on the south side of town) and Nick took turns going over case studies and expounded upon what was said as well.
The key takeaways our attendees learned were:
- You can let your personal social security benefit grow while still receiving income based upon your spouse’s benefit. Always check to see if using spousal benefits may make sense.
- Social Security has repealed their "do over" rules and now you need to be extra careful when making your elections because you cannot change them after one year.
- Waiting to receive benefits becomes more attractive the longer you expect to live.
- Utilizing benefits from divorced or deceased spouses can make a big difference over time.
Social security tends to be one of the largest sources of retirement income for most Americans. For those who have diligently saved over time or have large pensions, it is a smaller piece of the pie. However, even for the wealthiest one percent, these benefit elections are still relevant in that making the right decisions can increase lifetime retirement income by six figures. There are many instances where making the correct election can generate two to three hundred thousand extra dollars over a couple's life expectancy. Who would not want to receive an extra hundred thousand or two back from the government from what they have contributed over time?
Delaying social security only makes sense for those retired folks who have something else to live on while accumulating higher benefits. The key is to use our own retirement savings wisely so it will last as long as possible and defer the greatest amount of tax over our lifetimes. We all have learned to delay gratification by saving rather than spending, and the earlier someone starts the better off they tend to be. When considering tax ramifications of getting deductions now versus paying the tax and never having to pay tax again, many still take the upfront deductions.
In one of our planning newsletters from 2013, Nick penned an article detailing our Retirement Income Harvesting Strategy. The crux of the strategy is to spend down the least efficient assets first from both a tax perspective and an expected return perspective. The other key to the strategy (in its simplest form) is to always keep a certain amount of funds available in the case of emergencies, keep a certain amount available for current income and position the rest for growth over time.
To view Nick's article, feel free to follow this link.
For those of you who are unfamiliar, there are many studies showing the benefits of getting more conservative in the summer months and taking on more exposure to the stock market in the winter months. This is sometime referred to as Selling in May and Going Away or the Halloween Effect. When the markets are not performing well or going sideways as was the case in (2007, 2008, 2011 and 2012), this strategy tends to protect investors from much of the downside. However when investors get more optimistic and markets show a lot of upward momentum, this strategy tends to underperform. We have taken the stance that we are always looking to lighten our exposure to the most speculative and more fully valued (expensive) holdings during the more dangerous periods but wait until what we own starts to look more vulnerable.
At the start of the year, the laggards from last year recovered from their lows and led the charge forward with REITs, MLPs, bonds and commodities performing best early on. Non US equities also outperformed their US counterparts. The most speculative small companies which had performed better than everything else suffered early this year as investors sold to lock in gains in the new tax year. Lately, large US companies have picked up steam while the smaller companies are still looking somewhat weak.