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.
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.
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.
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