Ways To Delay Social Security While Maintaining Your Lifestyle

June 14, 2018

Financial planners generally agree that delaying your Social Security retirement benefits can be an excellent way to maximize your available retirement income and potentially stretch your savings over your lifetime. As you are probably aware, each year past full retirement age that you wait to file your claim, your Social Security retirement benefit increases by as much as 8%. Where else are you going to find a guaranteed 8% return on an investment these days?

Where else are you going to find a guaranteed 8% return on an investment these days?

On the other hand, if you are thinking about waiting until after you reach full retirement age to claim your Social Security retirement benefit, you might also be wondering where you are going to get the income that Social Security will not be paying you during those years when you delay this benefit. Fortunately, making a few little changes to your retirement spending plan in the near term could result in some big benefits in the long run.

How to plug the gap

Continue working a little longer

This is probably the most obvious alternative for generating income in place of a delayed Social Security retirement benefit and what most people choose to do. Working full-time or part-time provides immediate cash flow, but there is also another benefit that may not be quite so obvious.

Each year that you continue to work past your full retirement age, you also continue to accrue Social Security credits. These additional earnings and credits might begin to replace those from some of your earliest working years when you worked for significantly lower wages, fewer hours, or both. As a result, the formula used by the Social Security Administration to calculate your retirement benefit could generate an even larger benefit check than if you chose not to work a few more years.

Spend a little more of your retirement savings in the early years

I’m always surprised by the number of people who just assume they have to start collecting Social Security just because they are done working. Many of us have been coached during our working years not to touch our retirement assets and to make them last as long as possible once we do retire. Consequently, spending a little extra on the front end of retirement might seem like the wrong thing to do.

However, according to research by William Reichenstein and William Meyer, if your retirement portfolio is somewhere between $200,000 and $600,000, this strategy might be a good way to minimize taxes and stretch your retirement savings. Keep in mind, the additional spending only happens until you turn on your delayed – and larger – Social Security benefit. At that point, you would then begin spending substantially less of your retirement savings.

What it looks like

Let’s say your monthly Social Security check at a full retirement age of 67 would be $1,800. If you delay filing for three years until the maximum claiming age of 70, your check would increase to $2,232 (not counting any cost of living adjustments or additional credits for working during those years) or a flat 8% for each of three years, giving you 24% more Social Security income.

Since you would not be receiving the $1,800 in monthly Social Security between the ages of 67 and 70, you would have to withdraw an additional $21,600 from your retirement savings each year ($1,800 x 12). However, at age 70, not only would you be able to stop taking out the annual $21,600 from your savings, you would also begin receiving an additional $5,184 each year from Social Security, thanks to the delayed retirement credits paid to you by Social Security in return for delaying your benefit until the maximum claiming age of 70.

Convert a little of your investment portfolio to an income annuity

Everything you’ve heard about annuities is generally true: they can be expensive, complicated, and very difficult (as in even more expensive) to unravel if you change your mind. However, not all annuities are the same. An income annuity (also known as an immediate annuity) is about as plain vanilla and inexpensive as these products can get.

Assuming you have a pretty good idea of what your retirement budget may look like, converting a portion of your retirement portfolio to a lifetime stream of income by purchasing an immediate annuity at or a few years before you retire can help take some of the unpredictability out of your future retirement income.

There are many ways to slice and dice this strategy, and the free immediate annuity calculator at ImmediateAnnuities.com can help you see how much income can be generated from various investment amounts. Another great feature about this site – no sales pressure. You do not have to enter any personal contact information.

Think a little longer before you choose a reverse mortgage

If you are at least age 62 and have a considerable amount of equity in your home, you might be considering a reverse mortgage as another way to bridge the income gap between the date you retire and the date you elect to claim your delayed Social Security benefit. However, caution is advised with this particular strategy.

The Consumer Financial Protection Bureau (CFPB) recently issued a report advising older consumers that the relative costs and associated risks of taking out a reverse mortgage loan may not be worth the additional increase in delayed Social Security retirement benefits. The report points out that consumers should be fully aware of how this strategy may significantly reduce available home equity and limit retirees’ ability to handle future financial needs. The CFPB also makes available a helpful “Reverse Mortgage Decision Guide,” as well as an informative video for those who wish to know more about reverse mortgages.

A few more ideas

Finally, a few more ideas to help you bridge that retirement income gap include these:

• Encourage your spouse to work a little longer to prolong income and benefits.
• Live on less for a few years (or forever – tiny houses are popular!).
• Take pension benefits (if you have a pension).
• Convert some of your assets to cash (sell some stuff).

Whichever strategies or approaches you choose, a well-worn and familiar expression reminds us, “A little goes a long way.” With this in mind, a little change here and there in the way we manage our retirement assets just might go a long way toward making the most of our savings and enjoying retirement just a little bit more. Which one will you choose?

 

This post was originally published on Forbes