Issue 48.10
We all get only one shot at retirement, so making good financial decisions is critical. Unfortunately most seniors make the same simple mistake and it typically reduces the value of their Social Security benefits in retirement by as much as 20%.
It all comes down to the order and timing of how you draw your money out of your various retirement accounts. In financial planning this is called “Sequencing.”
Most seniors have their retirement money in one of three major buckets at retirement. The one bucket all seniors have in common is Social Security. The other two buckets are Qualified accounts, like an IRA or 401K and Non-Qualified retirement accounts, like savings and investment accounts
When I talk with seniors all over the country they tell me their biggest fear is running out of money before they die. It’s a fear that’s well justified as the Center for Retirement Research reports that nearly half of workers ages 34-60 are in danger of having 90% or less of the money they’ll need in retirement.
Conventional wisdom in the financial planning world is that seniors should draw money from their savings and investments first and leave their Qualified accounts to draw from last. That’s one of the reasons that nearly 70% of seniors start their Social Security benefits at the age of 62 to help bridge that income gap. Unfortunately, conventional wisdom is usually wrong for the majority of seniors.
By using your qualified money first, you can typically delay the start of Social Security Benefits and thus increase the size of your lifetime benefits. There are also great tax incentives to leaving your savings and other Non-Qualified money to draw from last.
The good news is if you’ve already made the decision to start taking Social Security and you’re not sure if it was the best timing for maximum benefits, the government allows you one opportunity to start over. You can’t afford to get this one wrong. To learn more about how to maximize your Social Security benefits RSVP your seat at the seminar on the following page.
Ross Jardine has taught investors in over 20 countries and co-founded InvesTools.