social security couple

If you born June 30, 1958 or before, and have retirement accounts, you deserve to be congratulated. What, you never heard that being 59 or older meant something with your retirement account?  But you probably have heard about the required minimum distribution date whereby in the year you turn 70-1/2 years old, you’d better take something from your retirement accounts otherwise the IRS imposes stiff penalties.

The congratulations reflect that you can start distributions from your IRA and 401(K) accounts without penalty.  Yes, we understand that you will have to pay tax on them, but we are only going to suggest that you do if you need to pay living expenses.  That means you were able to retire early (be sure you have health insurance covered until Medicare starts) or have had some difficulties with employment.  But, you do need to live and it’s important for you to look at your entire retirement planning picture in order to avoid the most common of social security mistakes retirees make.  That is not planning for when you start social security benefits.

If you need to, you can take a 20% discount and start at age 62.  There are some changes coming to the age at which benefits start or these milestones occur, so please do your research, since the dates are being extended for some baby boomers and later retires.  If you need the money or are of poor health, start as soon as you are entitled.  But we are here to propose you do the analysis and consider using your IRA and 401(K) accounts for living expenses should you be retired and can wait until age 70 to start taking social security.

Unfortunately, by following the press and other advisors, many people focus on the required minimum distribution date.  This maximizes money to heirs.  For us, the decision to start Social Security before age 70 and delay withdrawing money from a traditional IRA until age 70-1/2, when required minimum distributions (RMDs) begin, is completely backward.  We have already mentioned that you are giving up a higher Social Security benefit.  Once you reach your full retirement age, your monthly Social Security check gets 8% larger for every year you delay taking benefits through age 70 (technically, it’s 2/3% per month). If you really care, the “crossover point” that you need to live through is 12 years.

For example, suppose at full retirement age (which is 67 if you were born in 1960 or later) your Social Security check is $2,000 per month (or $24,000 per year). At age 70, that check would be $2,480 per month ($29,760 per year). By waiting until age 70 to start taking benefits, by the time you reach age 83 you would have been paid a total of $386,880, compared with the $384,000 you would have gotten if you had started at age 67, even though you got income for three extra years. The average life expectancy of a 67-year-old is at least 85, and growing, so any year you or your spouse live past age 83 is money in your pocket.

Taxes will be paid on your tax-deferred accounts no matter what, as they are taxable to you or your heirs, and at some point, it will be fully liquidated to you or to your heirs. Let us take this part out of consideration then.

As always, it’s not how much money you make that counts, but how much you keep.

Social Security income is never more than 85% taxable, but it might not be taxable. The taxed amount is determined by an 18-step calculation in the return instructions for Form 1040. Essentially, the process tells you to take half of your Social Security benefit, add that to all your “other income” and then perform a series of calculations to determine how much of your Social Security (between 0% and 85%) is taxable.  In other words, the bigger your Social Security check and the less “other income” you have (for the same total income), the less your adjusted gross income and the less tax you will pay.

Many advisors like to dazzle with expanded calculations on what is best for you, at C & B we believe that the realization is if you plan to retire before age 70, consider delaying your Social Security until age 70 and living off your retirement accounts from your retirement date until then.

The value of delaying Social Security until age 70 is far more than just getting “more money per month.” There are tax advantages, surviving spouse advantages, even inheritance advantages when the entire portfolio and estate are considered as a whole. However, there are times and circumstances when this advice is not suitable, and this is the reason for seeking professional financial guidance before implementing decisions about when to start Social Security and when to start withdrawing from your IRA, 401(k), etc.  Please be sure to consult your Tax Advisor for your specific situation.

Whether you are a business, individual, or non-profit – we will outline specific steps you can take to minimize taxes, maximize loan eligibility, or enhance the value of your property. With one call or email we will provide you with a professional, complimentary financial statement evaluation – no obligation. Just visit or contact us at, or call (212) 397-2970 and we will be happy to help you and answer your questions.