Retirement Planning Insights

Amid lost jobs and a scaled-back economy in 2020, some workers may have decided to retire earlier than planned. There are a couple of Social Security strategies worth considering in this scenario.

First, if both spouses are over age 62, determine if you can make ends meet by taking only one Social Security benefit while letting the other benefit accrue to a higher level. Depending on your circumstances, it may be better to let the higher earner’s benefit accrue untapped as long as possible. This tactic not only provides higher income for the latter stages of retirement but also allows the surviving spouse to receive a higher benefit – which is important when the household income is cut in half.

A second strategy is to wait until the economy recovers and then look for another job. If you start Social Security and then go back to work in fewer than 12 months, you can stop your benefit and actually pay back the money received. That will reset your start date and enable your benefit to continue accruing until you’re ready to retire again.¹

Remember, there are various strategies you can use to create bridge income should you retire early or just want to give your Social Security benefits and/or investments more opportunity to grow. For example, if you downsize to a less expensive living arrangement, you can use excess equity to create a reliable income stream either throughout a specific period of time or for life. Please contact us if you’d like to learn more about strategic retirement income solutions.

One of the silver linings of the pandemic was that the average savings rate among Americans increased significantly last year. According to the Bureau of Economic Analysis, the U.S. personal savings rate soared to a record 32.2% in April 2020 – which coincided with many state and local lockdowns. The previous one-month record was set back in May of 1975, at a mere 17.3%. Throughout the past decade, our savings rate has floated between 6-8%.²

Even if for only one month, Americans proved that they could live without many everyday goods and services. For the sake of saving more aggressively for retirement and other long-term goals, consider keeping your savings rate high, even post-pandemic. If that seems too challenging, consider appointing a “cut-back month” when you and your family commit to reducing expenditures just for one month. You may have done that last April; consider doing it again. If you are successful, consider deploying a cut-back month once every quarter.

What’s the best way to accumulate extra savings to build your wealth? Here are the 2021 contribution limits for various tax-advantaged accounts:³

• Employer-sponsored 401(k)/403(b) plans – $19,500 ($26,000 for age 50+)
• SIMPLE IRA and SIMPLE 401(k) – $13,500 ($16,500 for age 50+)
• Traditional and Roth IRAs – $6,000 ($7,000 for age 50+)
• Health Savings Accounts (HSAs) – $3,600 individuals; $7,200 families

If you’ve maxed out your available tax-deductible contributions, consider stashing extra cash into a Roth IRA. They’re funded with money you’ve already paid taxes on, so qualified distributions are tax-free.⁴ Moreover, a Roth does not mandate required minimum distributions (RMDs) at any age, so if you don’t need that money during retirement, it’s a way to continue accumulating assets for your heirs.

While it is generally recommended that investors save at least 15% of their annual earnings to generate adequate retirement income, that number may need to be higher or lower based on what age you started saving and your retirement goals. To determine the percentage of income (“savings multiple”) you should consider saving going forward, divide your total retirement savings by your annual income.⁵

If we can help in any way give us a call at 801-990-5050.

Our firm assists retirees and pre-retirees in the creation of retirement strategies utilizing investment and insurance products. Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. 

¹ Ilana Polyak. BenefitsPro. Dec. 28, 2020. “3 Social Security changes coming in 2021.” https://www.benefitspro.com/2020/12/28/3-social-security-changes-coming-in-2021/. Accessed Feb. 18, 2021.

² Alex Gailey. NextAdvisor. July 31, 2020. “The Pandemic Has Resulted in Record U.S. Savings Rates, but Only for Some.” https://time.com/nextadvisor/banking/savings/us-saving-rate-soaring/. Accessed Feb. 18, 2021.

³ T. Rowe Price. Feb. 4, 2021. “2021 Key Financial Numbers That You Need to Know.” https://www.troweprice.com/personal-investing/resources/insights/key-financial-numbers.html. Accessed Feb. 18, 2021.

⁴  Roger Young. T. Rowe Price. Feb. 3, 2021. “What You Need to Know When Deciding Between Roth and Traditional.” https://www.troweprice.com/personal-investing/resources/insights/what-you-need-know-deciding-between-roth-and-traditional.html. Accessed Feb. 18, 2021.

⁵  Judith Ward. T. Rowe Price. Feb. 4, 2021. “What Adjustments Should I Make to My Retirement Savings?” https://www.troweprice.com/personal-investing/resources/insights/what-adjustments-should-i-make-my-retirement-savings.html. Accessed Feb. 18, 2021.