As many in our country’s Baby Boom Generation are now starting to enter or get near retirement, it is becoming more well known that perhaps delaying their Social Security benefits up to age 70 could be their best and most financially desired goal. As this guide How To Maximize Your Social Security Benefits explains, if you begin taking your benefits at age 62, your benefits will be permanently reduced. But if you can delay your benefits past age 66, your benefits will grow 8% per year until you reach age 70. I don’t know about you, but I don’t know of too many investments, that payout for the rest of your life, that grow at a guaranteed rate of 8% per year – plus a cost of living increase every year! Since most people are living longer these days, it’s important to find some kind of income that is going to be lifetime. One option for lifetime income are Annuities, however, we will set those aside for now since the main focus here is maximizing Social Security.
So What If You Want to Retire Before Age 70?
The reason for wanting to delay your Social Security benefits is clear for the guaranteed 8% increase in benefits, but how do you get there? One powerful strategy in finding enough income to make it from your mid-60s to age 70 is evaluating whether or not you can access Spousal Benefits from Social Security. As the previously linked guide explains, there are a few ways that someone can access a spousal benefit Social Security check every month, and continue to DELAY their own benefits so that they grow that 8% per year. Another option for income in your mid-60s could also be an immediate annuity, which will provide a guaranteed income stream and protect your hard-earned savings from market volatility.
But What are Some Risks To Delaying Your Social Security Benefits?
Now what if an older spouse filed for their benefits and delayed them at age 66, but then unfortunately passed away at age 69? They clearly did not receive a Social Security check and income from age 66 to 69. Both the younger and older spouse received very little to NO benefit from delaying the benefits because they sadly did not make it to the point to be able to draw a check and maximize their benefits for both of them – AND they lost out on many thousands of dollars that could have been used or saved during those years. Or if they passed away at age 71, then they only received their check and increased amount for 1 year. Again, an overall loss of money that could have been saved for the surviving spouse.
What is the answer to this risk? One strategy is funding a fixed-indexed universal life policy leading up to retirement for 3 reasons. 1. The policy will build cash-value over the time it is funded. If you need income in your mid-60s, you can take a policy loan from your cash-value which will provide the necessary income to make it to age 70. 2. If one spouse who is delaying their benefits happens to pass away during this time period, then the life insurance policy will pay out the cash-value and the policy face amount to the surviving spouse. This ELIMINATES the risk of “losing out” on the benefits that were not received from a deceased spouse who had delayed their benefits but passed away before they could receive a check, as the life insurance policy would serve as necessary and important income to the surviving spouse. 3. Both the policy loans that can be drawn from the cash-value in your late 60s while delaying Social Security benefits, as well as the life insurance payout to a surviving spouse are both TAX FREE. No taxes are owed on this money which is an incredibly powerful feature that will ensure maximizing income to either spouse.
It is important to note that this life-insurance strategy is something that is difficult to employ once you make it close to retirement, as funding the policy for some time helps build the cash-value to a level that allows it to maximize for policy loans. Also, life insurance is something that has to be qualified for – which is more difficult and more expensive the older someone gets. This is a strategy best served for someone who has 10 or so years, give or take, leading up to retirement. Usually your mid to late 50s are the highest earning years for most people, and this helps people be able to start getting their finances and strategy together leading up to retirement.
For the person who is already very close to retirement, again, an immediate-annuity may be the best option and source for guaranteed income, and to ensure that the money they need for retirement isn’t exposed to stock market losses. Call or email me and we can discuss which strategy may be most appropriate for your situation.