“It is not just about retiring; it is about knowing when to retire.” — Lawrence Castillo
When folks seek to retire, one of the most important objectives to evaluate is their Social Security benefits. Social Security is an excellent resource because it provides a guaranteed check for life.
However, if you file your benefit too early (62), you could face up to a 30 percent reduction in your check. If you decide to delay taking your benefit till age 70, you could receive up to 132 percent more. The downside is that if you delay, you are missing out on all the prior years’ payments, and if you passed away on your 72nd birthday, you were unable to enjoy any cash flow from the Social Security system.
There are three main reasons people wait:
1. To receive more income from their Social Security
2. To leave a more substantial benefit amount to their spouse
3. To hedge against inflation and purchasing power.
There are many other reasons, but these are just some of the most common. Trying to “time” filing for your benefits can be tricky; the main goal is to get the most cash flow as soon as possible — this way, the money can be enjoyed and help aid in the overall retirement income plan.
Social Security is a giant annuity; it provides a guaranteed stream of lifetime income benefits.
The earlier you decide to file, the lower the benefit amount since that benefit amount will be paid out for a longer period of time. If you file at 62 and have a life expectancy of 82, that is twenty years that the Social Security Administration will provide income payments to you.
Adding an individually-owned annuity to your retirement plan can help make your Social Security filing decision easier, knowing that you have two guaranteed streams of income on which to rely.
There are three main benefits to owning your annuity in conjunction with your government annuity, Social Security:
1. It provides additional income that may enable you to retire sooner than you originally planned.
2. It can help you stay ahead of inflation by adding an additional stream of potential increasing income.
3. It provides a joint income so that when a spouse passes, the surviving spouse could have the same level of income for the rest of their life.
Let us examine the third benefit: If a married couple has two Social Security checks each month and one of them passes, the surviving spouse is only able to keep one benefit check, not both. This can pose a huge cash flow issue in the future. However, if they own an annuity with lifetime income, that income may be able to replace the lost Social Security benefit. They were allowing the surviving spouse to have the same lifestyle.
There is also another added benefit to having an annuity within your retirement plan. While receiving the guaranteed lifetime benefit and protecting your spouse, you will also be fulfilling some, if not all, of your Required Minimum Distribution (RMD) from qualified retirement accounts.
Since 2020, the government has bumped up the RMD age to 72 for those who were not already subject to RMD’s. Essentially, you are forced by the government to start spending down your qualified retirement accounts (excluding Roth’s) so that you can pay your income taxes on that money.
Ask yourself this: “If the government is going to force me to withdraw money from my retirement account, why wouldn’t I want that income guaranteed for life?” An annuity can provide that solution and many others. Far too often, annuities are misunderstood or not fully understood.
Annuities are the only financial resource that can provide a guaranteed life income (pensions are also annuities). Who are the happiest people in retirement?
Those worried about when the next market crash is going to occur and if they will have enough money to survive or those with a guaranteed lifetime paycheck?
(Lawrence Castillo is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. L and C Retirement Income Planners, 4801 Lang St. NE Suite 100 Albuquerque, NM, 87109, 798-2592, lawrencecastillo.retirevillage.com.)
Lawrence Castillo, guest columnist
Lawrence Castillo is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. L and C Retirement Income Planners, 4801 Lang St. NE Suite 100 Albuquerque NM 87109 505 798-2592 lawrencecastillo.retirevillage.com.