Live off sav­ings or claim So­cial Se­cu­rity early?

The Beaufort Gazette (Sunday) - - Business - Matthew Frankel

Ques­tion: I’m 65 and plan­ning to re­tire this year. Would I be bet­ter off claim­ing So­cial Se­cu­rity now and with­draw­ing as lit­tle as pos­si­ble from my re­tire­ment nest egg, or should I tap into sav­ings and hold off on So­cial Se­cu­rity?

An­swer: This is a pretty good po­si­tion to be in, but there’s no one-size-fits-all an­swer. There are solid ar­gu­ments to be made for both op­tions.

The ar­gu­ment in fa­vor of claim­ing So­cial Se­cu­rity is that your re­tire­ment sav­ings will be al­lowed to grow and com­pound on a tax-de­ferred ba­sis for an­other few years.

It can also make bet­ter sense from a tax per­spec­tive. While So­cial Se­cu­rity in­come can be taxed, 85 per­cent of your benefit is the max­i­mum amount that can be con­sid­ered as tax­able in­come, and for many peo­ple this per­cent­age is sig­nificantly lower. Mean­while, if you with­draw money from a tax-de­ferred re­tire­ment ac­count like a 401(k), 100 per­cent of your with­drawal will be tax­able.

The ma­jor down­side to this op­tion is that re­turns in re­tire­ment sav­ings ac­counts gen­er­ally aren’t guar­an­teed, es­pe­cially if you have a sig­nificant amount of stock-based in­vest­ments.

On the other hand, claim­ing So­cial Se­cu­rity late gives you a guar­an­teed re­turn. If you de­lay So­cial Se­cu­rity be­yond your full re­tire­ment age, for ex­am­ple, your benefit will in­crease at a rate of 8 per­cent per year. Plus, keep in mind that So­cial Se­cu­rity is an inflation-pro­tected in­come stream, while your re­tire­ment sav­ings likely are not.

The bot­tom line is that both ap­proaches have pros and cons. Mypref­er­ence is the de­layed So­cial Se­cu­rity op­tion, but it’s im­por­tant to con­sider your over­all finan­cial sit­u­a­tion be­fore de­cid­ing.

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De­lay­ing So­cial Se­cu­rity means more guar­an­teed in­come later.

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