Hopefully, your most significant retirement income is not going to come from Social Security. For most of our Self-Directed IRA clients, the significant drivers of retirement lifestyle options come from a combination of closely-held businesses, IRAs, 401(k)s, SEPS, home equity, real estate, including real estate IRAs and the like, and private investing in taxable accounts. As it should be.
One of the best things about having a robust retirement portfolio is that it gives you options. For example, if you don’t have to rely on Social Security benefits just to get through the month because you have been diligent about saving and investing, and you have a substantial Self-Directed IRA at your disposal to begin providing you income on your own terms, you have much more flexibility when it comes to maximizing Social Security benefits.
To that end, here are some ideas for you and your advisors to consider:
File and Suspend
With this strategy one spouse – the lower-earning of the two – begins to collect a Social Security income benefit. Meanwhile, the spouse that earns more continues to work, and continues to build up Social Security benefits.
Let’s assume you were born between 1943 and 1954, which means “full retirement age” is 66 for your cohort. Now, you would like to be able to claim a spousal benefit for your wife, which is equal to 50 percent of your own Social Security benefit. But you can’t without jumping the gun and claiming your own benefit, too. But you don’t want to do that because you’d rather wait until you are at full retirement age – or even better, wait until you are age 70, which allows you to collect delayed retirement credits at 8 percent per year.
If you can do this, you boost your retirement income in later years and earn a better survivorship benefit for your spouse (assuming you outlive him or her).
Under the ‘File and Suspend’ strategy, you can actually file for your benefit and trigger your spouse’s benefit. But then you can immediately turn around and suspend your own benefit.
This strategy lets you have your cake and eat it, too. By suspending your benefit, you can simultaneously enjoy the benefits of your spouse’s income, and let your Social Security account continue to accrue delayed retirement benefits.
Of course, receiving your spouse’s current Social Security benefit also has a spillover effect into your own retirement savings strategy. Here’s why:
If using the file-and-suspend strategy brings in, say, $1,000 into the household, from a theoretically inexhaustible source, then that’s $1,000 per month you won’t have to take out of your Self-Directed IRAs and other tax advantaged retirement accounts. You can continue to let them compound, tax-deferred.
This is a particularly effective strategy if you are in relatively good health. For those who expect to live long past age 70, the extra retirement benefit you can get by holding out until extended retirement age works out to a significant boost.
There are other applications for the file-and-suspend strategy, as well. In certain circumstances, those who had children very late in life, or adopted children or are guardians to grandchildren, for example, may be able to trigger a 50 percent benefit for minor children in the same fashion.
The option is also available for those who perhaps regret having taken the benefit early at age 62. But once you reach full retirement age, if your health looks good and you have every reason to expect you will live well into retirement, you can elect to suspend benefits until age 70 (for now), and begin collecting larger benefit then.
For a fuller discussion on the applications of the file and suspend strategy, see this piece from Kiplinger’s Rachel Sheedy.
American IRA is a leading expert on all things related to self-directed retirement investing. With offices in Asheville and Charlotte, North Carolina, we assist investors from coast to coast, Alaska and Hawaii with Self-Directed IRAs, 401(k)s, SEPs, SIMPLEs and even Coverdell and HSA account administration and compliance.
For more information on the powerful concept of Self-Directed IRA investing, visit us online at www.americanira.com, where you can download one of our exclusive guides to self-directed retirement investing or our e-book.
Better yet, call us today at 866-7500-IRA(472).
We look forward to serving you.