retirement

Live off IRA money while working part-time

Liz WestonDear Liz,
I am 66 and work part time at minimum wage. I have only $100,000 in traditional IRAs, $75,000 in certificates of deposit and $25,000 in an index fund. My question is whether I should live off my IRA money between now and age 70 so I can avoid tapping Social Security until my benefit is at its maximum (which would be $44,000 a year). I'm currently getting $300 a month as a spousal benefit based on my wife's work record.
-- Larry P.

Dear Larry,
Financial planners usually recommend delaying withdrawals from tax-deferred retirement accounts such as IRAs. The longer you can put off withdrawals, the longer your money can continue to grow without taxes eating away at your returns.

The math can change when Social Security is factored into the equation, however. Your untapped Social Security benefit will grow 8 percent annually between your full retirement age of 66 and age 70, when your benefit hits its maximum. This "delayed retirement credit" offers a guaranteed return you simply can't match anywhere else.

Social Security benefit grows each year if you delay | Social security card © Mega Pixel/Shutterstock.com

There's another advantage to waiting: You're also growing the check your wife may have to live on in the future. Once a married person dies, the surviving spouse has to get by on a single Social Security check: either her own, or a survivor's benefit that typically equals what the deceased spouse received. Since her benefit is so small (based on how little you're getting as a spouse), she clearly would need the survivors benefit. So, delaying the start of your benefits would give her a more comfortable income after you're gone. If you're the one who is widowed, a bigger check obviously will benefit you as well.

Given the advantages, many planners encourage clients with small nest eggs to consider tapping them if that's the only way they can delay starting Social Security benefits. Since you have other investments -- CDs and your index fund -- you should consider using those first before breaking into your IRA.

Before you do anything, though, you should run your plan past a fee-only financial planner who can assess your individual situation and give you personalized advice.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Liz Weston, go to the "Ask the Experts" page and select "Retirement" as the topic. Read more Retirement Adviser for additional personal finance advice.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed 4.11%  0.06 4.17%
15 year fixed 3.22%  0.04 3.26%
5/1 ARM 3.46%  0.13 3.33%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.31%  0.02 4.29%
50K FICO-based HELOC 4.06%  0.02 4.04%
100K FICO-based HELOC 3.91%  0.02 3.89%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.79% --0.00 2.79%
48 month used car loan 2.99% --0.00 2.99%
60 month new car loan 3.23%  0.01 3.24%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.97%  0.00 0.97%
2 Year CD 1.18%  0.02 1.16%
5 Year CD 1.81%  0.10 1.71%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.75% --0.00 15.75%
Cash Back Cards 16.45% --0.00 16.45%
Low Interest Cards 10.96% --0.00 10.96%
 
Next
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Blog

Jennie Phipps

Medicare: Pricey isn’t always better

On average, Medicare Advantage and Part D prescription drug plan prices aren't going up much this year. Make sure yours doesn't buck the trend.  ... Read more

advertisement
Partner Center
advertisement

Connect with us