The Suburbanite
  • Retirement can be fun, if Social Security benefits are in order

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  • With the boom of retiring Baby Boomers, it is important to know what to do when it’s your turn. Retirement is to be a fun, relaxing time, and retirees don’t want to make mistakes that will impact their finances at retirement.
    A large portion of Baby Boomers believe they will be able to live on their Social Security and not take money from their savings or investments except for extra expenses. However, according to a report from the Society of Actuaries, retirees may find that expenses increase after retirement. This increase is due to a variety of factors, such as rising medical costs and finding they have more time to travel or do things they didn’t used to have time to do.
    It is important to know how Social Security benefits can best work during retirement. Visit the Social Security website at www.ssa.gov, talk with a case worker or speak with a financial adviser to decide the best time to begin collecting Social Security benefits.
    How Social Security fits into a retirement income plan can work in the retiree’s favor. Collecting at age 62 will permanently reduce benefits receiving the maximum reduction. Those waiting until age 70 to collect will receive maximum benefits. It is possible to stop benefits and collect at a different age; however, it is necessary to pay back any payments collected, though there is no interest or penalty.
    Dee Siegferth of The Milestone Center on Arlington Road said that most people think they should take benefits at age 62.
    “In some cases that is true,” Siegferth said. “But, if you are working and earning more than $14,640 per year, Social Security will withhold $1 for every $2 you earn above the limit.”
    After the full retirement age is reached, a person collecting Social Security can earn unlimited wages.
    Does it help to delay benefits to a later age? Every year that benefits are deferred up to age 70, retirees receive a delayed retirement credit for each year in addition to a cost of living raise for each year. An increase could range from 7 percent to 8 percent.
    Why aren’t more people taking advantage of this increase? Siegferth said that most people do not know there are strategies to maximize their benefits and minimize their taxes.
    Do retirees pay taxes on collected benefits? Yes. Taxes depend on the amount of provisional income included in a tax return. Up to 85 percent of benefits must be included as income for the federal income tax return. Provisional income includes pensions, retirement account withdrawals, dividends, taxable interest, capital gains and interest on tax-exempt bonds.
    A good formula to figure out if income exceeds the tax thresholds is to take 50 percent of Social Security benefits and add it to the provisional income. If the total of those exceeds $32,000 ($25,000 for singles), then up to 50 percent of your benefits are taxable. If the total exceeds $44,000 ($34,000 for singles), then up to 85 percent of benefits are taxable.
    Page 2 of 2 - Author and financial adviser Ed Slott writes in his book “Stay Rich for Life,” that the tax return is like a pinball machine.
    “Anytime you add income to it, all the bells and whistles go off,” he wrote.
    He points out that raising adjusted gross income might boost the tax on your Social Cecurity benefits and withdrawals for IRA required minimum distributions are one of the biggest generators of stealth taxes.
    “Everyone needs a second half of the game strategy to avoid ‘The Retirement Tax Bomb’ when they begin taking Social Security,” Slott advised.
    After age 70 and a half, it is required to take the required minimum distributions from 401(k), 403B or other IRA plans. Those withdrawals could possibly make for more provisional income and could affect the taxable social security benefits.
    It is difficult to decide when to take the benefits, so it is best to talk with a professional adviser before taking any action.

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