In our last article, we touched on three key financial and retirement strategies to review and assess at age 50 or thereabouts. Specifically, we addressed the topics of:
- Asset & Investment Risk
- Debt Reduction
- Life Insurance Cost & Your Physical Health
We overviewed how the decisions you make (or fail to make) in each of these regards could follow you into retirement. Each factor can either hinder or help you towards meeting your retirement goals. If you’d like to take the first step in implementing those age 50 retirement strategies, click the button below! Otherwise, read on!
Now let’s fast forward to what is, for most, the next major age-based milestone in their journey toward retirement–age 65. Being that age 65 is the average age of retirement in New Hampshire, this is nearing the end of that journey. However, there are a few key financial and retirement strategies that ought to be considered which could affect your decision to end that journey before or at 65, or, perhaps, keep on going for a little bit longer.
1. Social Security Maximization Options
The first retirement strategy has to do with something many view as an inflexible tool of which they are at the complete mercy of. When it comes to Social Security, many feel they are subject to whatever benefit amount the United States government has calculated for them at the time they decide to retire.
Timing is Key
A major reason many hold this view is age 65 has become so closely associated with “the age at which you retire”. Likewise retirement is inextricably associated with Social Security. However, Social Security benefits don’t automatically have to happen when you retire. Nor is it an entirely inflexible tool you have no control over.
Firstly, while age 65 was the full retirement age (FRA) when Social Security first began, this has been progressively adjusted depending on the year you were born. For most everyone today who will be considering taking Social Security benefits, their FRA will be somewhere between age 66 and 70. Triggering your SS benefits before your FRA, down to age 62 (the first year you’re eligible to receive SS benefits) means a lower benefit amount.
Ok, so is Social Security only negatively flexible? No, it can be used in your favor, especially if you’ve properly worked it into your retirement plan. If you’ve reached and then surpassed your full retirement age, now your Social Security benefit begins to be positively flexible. Each year you delay triggering these benefits, up to age 70, your SS income benefit will increase.
Other Considerations
Timing isn’t the only factor to consider as SS relates to your retirement strategies. Rather, it carries even further complexity than described above. This is why we recommend sitting down with a fiduciary financial advisor who will take a full-scale look at your situation. From there, you can make an informed decision about when is best for you to initiate this income stream.
For those we work with, we use a proprietary software to create a Social Security Maximization Report. By factoring in both spouses’ life expectancies, their FRAs, and spousal benefit, we’re able to develop their optimized filing strategy. In other words, timing it to maximize their SS benefits.
By doing so, we’re often able to increase those we work with’s lifetime SS benefit by $60,000-$120,000.
2. A Key Age for Medicare
While age 65 isn’t necessarily the magic age for SS, it is the magic number for enrolling in Medicare. Keep in mind that you’ll be automatically enrolled in Medicare if you’ve already enrolled in Social Security before age 65. However, if you are able to strategically defer your SS benefits until after you’ve turned 65, then you will have to manually enroll in Medicare.
How do you do that and do you have a time limit to enroll? If you do end up deferring SS until after 65, you can enroll in Medicare from the Social Security Administration website. The standard time limit is a 7-month initial enrollment period (IEP). These 7 months are:
- The 3 months before the month of your 65th birthday
- The 1 month of your 65th birthday
- The 3 months after your 65th birthday
Failing to enroll during this period could cost you a late enrollment penalty–one that increases the longer you delay.
Enrolling in Medicare once eligible is one of the pillars of effective financial and retirement strategies. Besides lowering expenses for you, it can lower expenses for your employer (if you have health coverage there). This is one of the primary reasons age 65 is a key age as it relates to your retirement plan. Don’t delay!
3. Saving in Your 60s
When most people think about their 60s, they’re thinking less about growing their retirement savings and more about spending it. While it is true that there’s a good chance you’ll be relying on your hard-earned retirement investments to some degree at this point, it doesn’t mean the savings have to stop.
As long as you’re still receiving some form of earned income you can continue to contribute to tax-advantaged retirement investment accounts. Common types of this are the traditional IRA and 401(k).
What this doesn’t have to mean: continuing to work at full pace throughout your sixties. What this could mean: working employed or self-employed at a significantly reduced rate that still allows you ample time to enjoy this period in your life.
Test Case
A quick example: Say you’re able to reduce your work at age 60. And between your earned income and income from retirement savings. That allows you to meet your expenses while deferring your Social Security enrollment so as to maximize your benefit.
All the while, you continue contributing $8,000/year until age 70 to an investment account. The money in that account continues to grow tax-deferred. Assuming a moderate growth rate, this winds up about $100,000 in additional retirement savings you may not have even considered! That could make your retirement more secure and more comfortable.
Before Implementing these Financial & Retirement Strategies…
Implementing these financial and retirement strategies shouldn’t be done rashly, however, as there could be tax consequences. Especially does this have the potential to hold true if you’re receiving SS benefits at the same time.
Sitting down with a fiduciary financial professional who not only is a financial advisor, but has a depth of retirement planning knowledge, is key to making sure your retirement plan is optimized. This is especially significant considering there is no blanket answer for everyone. Each individual or couple has their unique savings, expenses, plans, and goals.
Are you or someone you know approaching, at, or recently passed 65 years of age? Would you like to learn how to strategically optimize Social Security benefits, minimize taxes, and maximize retirement savings? If so, click the button below to book a complimentary strategy session with a fiduciary financial advisor.
