Posts Tagged "financial strategy"

Readers’ Favorite Retirement Blogs: 2022

Older Americans who want to be smart about retirement finances are curious about the intricacies of Social Security.

The blog that drew the most traffic from our readers last year – “The Bridge to a Larger Social Security Check” – suggested a strategy for getting more out of the program: delay signing up for Social Security by withdrawing savings from a 401(k) to pay the bills.

Each year that Social Security is postponed adds 7 percent to 8 percent to a retiree’s monthly benefit check. A couple of years of delay, funded with savings, can provide significantly more money, month after month, to pay the bills. The researchers concluded from an experiment that asked older workers to consider the delay strategy that a substantial minority “are interested in a bridge option despite its unfamiliarity.”

Another popular blog last year was about an experiment involving another unfamiliar concept fundamental to the program: the Retirement Earnings Test. In “Explaining Social Security’s Earnings Test,” readers learned that any reduction in benefits that occurs if they simultaneously work and collect the benefit in their early to mid-60s is not a tax.

Instead, under Social Security’s rules, some of an older worker’s benefits may be deferred. The benefits are incrementally added back into his monthly checks after he reaches his full retirement age under the program. Understanding that the reduction in benefits is a deferral, rather than an outright cut, is an important aspect of the program that is increasingly important for older workers looking for strategies to improve their standard of living in retirement.

If delaying Social Security is good for older workers’ financial security, the article “COVID’s Impact on Social Security Claiming” delivered a little good news. The generous, extended unemployment benefits approved by Congress made it easier for older workers who lost their jobs during the 2020 spike in unemployment to remain in the labor force rather than sign up early for their benefits and lock in a smaller monthly check.

This positive pandemic trend was a stark contrast to the Great Recession. During months of protracted unemployment following the 2008 financial crisis, jobless older workers became more likely to resort to signing up for Social Security because they needed income.

One aspect of retiring and aging that can really throw a wrench in financial planning is medical costs. In “A Start on Estimating Retiree Medical Costs,” the researcher estimates that retirees with average healthcare needs must cover about 22 percent of their total out-of-pocket costs, excluding premiums, or just over $67,000 in total over their remaining lives. Retirees needing high levels of care can spend twice as much.

Another unknown: long-term care. A study covered in “Spouse in Nursing Home Raises Poverty Risk” finds that one in three married people in their early 70s is likely to have a spouse who will eventually wind up in a nursing home. Not all nursing home stays are for an extended period of time. But if an unlucky spouse does have a long stay, the couple is significantly more likely to become impoverished while paying for the care.

Other popular blog topics in 2022 included Medicare, work, and profiles of individual retirees: …Learn More

The Bridge to a Larger Social Security Check

Retirees who postpone collecting Social Security from age 62 to 66 – the full retirement age for most baby boomers – get around a third more in their monthly checks. Delaying to 70 increases it even more.

There’s one problem with this strategy. Many people want to retire well before they turn 66.

But there is an alternative for people with 401(k) savings: retire but don’t sign up for Social Security and withdraw an amount from the 401(k) equivalent to the Social Security check. Then delay Social Security for a few years. The start date will, of course, depend on how much money is in savings and how much of it the retiree can spend comfortably.

In a recent experiment, this idea appealed to a substantial minority of older workers who were made aware they could create this so-called “bridge” to a larger Social Security check.

The researchers randomly assigned the workers – all between 50 and 65 – to one of four groups. Each group was presented with the same choice of whether to use the bridge strategy but the choice was described differently. Regardless of the description, the share of participants willing to consider the strategy fell within a range of 27 percent to 35 percent.

This level of interest is “noteworthy,” given that “the survey is likely the first time the respondents would have encountered the idea of drawing down their 401(k)s to postpone claiming Social Security,” said the researchers at the Center for Retirement Research. …Learn More