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Many Americans rely on Social Security benefits in retirement. We pay into it our entire working lives, so why not use it when it comes time for us to enjoy our golden years? However, with so much talk lately of Social Security running out, that Social Security won’t exist for the Millennial Generation, it’s worth considering: how much should we rely on it to pad our retirement?
In a recent article from Russ Wiles, he notes that Social Security isn’t as simple as just getting a check in the mail once a month. The amount of money you receive—and the amount of it that gets taxed—relies heavily on how much you’re relying on other retirement funds, such as IRAs, 401(k) plans, and other investment accounts. Essentially, you’re only receiving untaxed Social Security benefits if you earned less than $25,000 in income (or $32,000 for married couples). Otherwise, up to 85% of your social security can be taxed. If Social Security is a big factor in your retirement plans, this could come as a very unwelcome surprise.
In some cases, individuals will rush to collect their Social Security benefits at an early age, simply because they need the money. Early withdrawal means taking smaller payments. However, these punishments that come with early collection are often more severe as you grow older—when you need the money more than ever.
Early withdrawal becomes even more complicated as a spouse. Generally, spousal benefits are easy: a worker is entitled to a specific amount at retirement age; the worker’s spouse is entitled to half that amount. If a spouse chooses to take benefits early, they’re reduced at a similar rate as if a worker would do the same.
However, if the spouse has retirement benefits through their own work history, everything becomes more complicated. The “deemed-filing rule” means that claiming spousal benefits early means you’re also claiming any of the spouse’s work-related retirement benefits early. If the work-related benefits are greater, you simply get the work-related benefits, and no spousal benefits at all. If the spousal benefits are greater, you get the work-related benefits plus the difference to equal the spousal benefit. There’s no double dipping.
Social Security benefits can be a great benefit in retirement, especially under the right circumstances. But it’s increasingly difficult to rely on them, especially if there are other, more lucrative retirement funds to draw from.
An option that many advisors don’t consider for their clients is a life settlement. By selling a life insurance policy that they no longer want or need, they’re freeing themselves of a monthly premium and creating liquidity for other, more lucrative retirement investment opportunities that can help in retirement far more than Social Security.
If you or a client has a life insurance policy they no longer want or need, and don’t want to rely on Social Security in their retirement, see if they’re a good fit for a life settlement by using our qualification calculator.
I would be happy to answer any questions you might have about this, or any other life settlement topic. I can be reached at 888-849-0887 or llagrotte@lsa-llc.com.
Leo LaGrotte
