Hello, Rich Frazier CFP with Frazier Financial Consultants here!
Hi Bonnie and Rich, and welcome to today’s Jump-Start Your Retirement Plan Live Chats!
Good Morning, Allison Berger with Financial Symmetry
We received several questions in advance, and for the most part, questions will be answered in the order they were received. Each question will be held for moderation until an advisor is available to give you a detailed, personalized response. So, please do not be concerned if you do not see your question appear right away.
If you have a follow-up question, please submit it, and we will bring it to the advisors’ attention right away.
Rich, you can take this first one from Bill D
Hi Bill, your wife can claim SS benefits at her full retirement age, and you can receive 50% of her benefit. She can also register for SS, delay payments so her monthly payment increases (she can delay until 70) and you can receive spousal benefits. However, when you receive your benefit, it will be a combination of spousal and your own, I believe. SS is pretty tricky and I do not know if she can switch back to your benefit or not.
Bonnie, here is one for you from RHS202
Hi RHS202, thank you for your question. You can certainly consider an annuity. In doing so, ask these questions and please do not purchase unless and until they are answered to your satisfaction. 1) why do I want an annuity, is it to protect and pay for certain known payments like a mortgage? 2) what will the annuity be invested in, 3) what are my distribution options, 4) what are ALL (the investments, the commission, the mortality, surrender, management fees, 5) would a diversified low cost portfolio with scheduled distributions accomplish the same things much more efficiently and less expensively. Remember when purchasing an annuity - you live with the contract, not the sales conversation. The overwhelming number of my clients with annuities are not happy with their purchases (made through sales folks, not advisors).
Raymond, where do you live? I ask that because if it is in a big metro area, you may be very surprised at job opportunities you hadn't considered. Let me give what may seem like a silly example, but I assure you, the money isn't silly. Here in the metro DC area we pay full time dog walkers $45k/year. It is becoming more likely that it is possible to earn income almost anywhere. Yes, you can apply for SS benefits but you probably already know that by doing so before full retirement age 65-67 depending on your birthdate, you take a permanently lower payment.
And Allison, here is one from Rod
Rod, the answer is really that it depends. If you have a large taxable account that you can withdraw from then you may use this for a few years if you retire early and before you reach full retirement age for SS. This also presents opportunity to have a few low tax income years where you may be able to do a Roth conversion at a low tax rate to use later in retirement for tax free withdrawals. If you do not have much taxable savings and the majority of your funds are in tax-deferred accounts and you are relying heavily on SSI and pension then it is best to wait closer to full retirement age. You would just want to be careful not to deplete too much of your net worth before starting SS or pension income if you retire early
Rod, Sorry I didn't address the no debt question. The question of paying off debts really depends on the interest rate on the debt and your expected rate of return on your investments. If the interest rate is low and you expect to earn a higher rate of return on investments over the term of the loan, then it may be best to continue paying on the debt into retirement.
Rich, here's another question for you from Mere1948
Mere1948, see if there is an option available to roll it directly to an IRA Rollover. This is not a taxable event and then you can take money out at your leisure, while paying taxes on it of course, but you would not get hit with a large tax bill on the full amount.
Allsion, how about you take this one from Steward
Steward, If you retire at 62 and have enough income sources to wait until full retirement age to start social security, then you should plan to do that so that you receive the higher benefit amount when you start drawing. In most cases you will pay income tax on pension received (some local government pensions may be exempt from state income tax). Social Security income will be taxable if your modified AGI is above $32k MFJ (50% taxable) or $44k MFJ (85% taxable). As I noted in the previous answer the time between age 62 and drawing full SS may present some planning opportunities such as Roth IRA conversion that you may want to explore
Bonnie, here is a long one from Larry. Happy almost retirement, Larry!
Hi Larry, yes, congratulations on your planned retirement! You are intrepreting the benefit limitations correctly in that once you hit the limit, if you are below full retirement age, your benefits would be reduced, however you are still earning credits while working. Once you hit full retirement age, your full benefits would come. I am not clear on what you're asking about the effect of contributing more to your 401k - yes, that would help under almost any scenario but wouldn't affect what you get from SS - did that answer your question?
And Rich, here's one from Sneaky Pete
Hi sneaky pete, you have a few options. I think as people near retirement and the kids have flown the nest, there is not enough need for a large house. Downsizing into something smaller is a great way to capture some of the equity in your home. A reverse mortgage comes with fees and I wouldn't recommend it unless its a last resort. You could always look into a home equity line of credit on your home. They generally have low interest rates and you can deduct the interest on your taxes.
Alright, ready for our next round of questions!
Rich and Allison, how about you tackle these next few questions from Sherian
Sherian, on the pre-tax funds in the IRA you might consider a Roth conversion when you retire at 62 and before you begin SS and regular withdrawals. Your taxable income is likely to be much lower in these years and you may be able to pay a lower rate on the conversion than later in retirement. You can then make tax free withdrawals from the Roth IRA in retirement as needed to help you manage your taxable income from year to year. If you are eligible to contribute to a Roth now then you should consider doing that as well in your last few years before retirement
Sherian, I believe the spouse can receive benefits at 62, as long as their spouse is full retirement age, but they will do so at a reduced payment. Also when the spouse collecting the benefit switches to their own, that they will receive a combo of the spousal and their own. I would look at ssa.gov or call someone from the SS department, they are very helpful. Picking investments is very tough to do without meeting and talking with the client about their risk profile, so I can't do that here. Just remember to pick a balanced allocation (bonds and stocks) that reflects your risk profile and age.
And Bonnie, here's one from George777
Hi George, my bias would always be towards the lump sum - gives you so many more options on investments, control of distributions (including when you pass), and costs. Have you priced the term insurance to work out whether it would be better vs. spousal if you end up choosing the annuity? My other suggestion is that you find a competent advisor to guide you on the investing of that lump-sum. Such an advisor will put you through the paces of establishing a timeline, risk tolerance, and get to know you and your family's goals intimately to manage the amount so that it delivers what an annuity could deliver but at a lower cost. That said, depending on your spending (you could take $70k/year from the IRAs) and take the annuity to pay the mortgage . . .
Thanks, Allison, here's our next one from Paul
