Five Ways to Maximize Your Social Security Benefits

Five Ways to Maximize Your Social Security Benefits

What would an income increase of 10% mean to your retirement?

Would it afford you more freedom? More opportunity to travel? The ability to spoil your grandchildren? Or even the ability to buy that vacation home on the lake you’ve always dreamed of?

For most Americans, Social Security benefits are an important part of their retirement income. In fact, according to the Social Security Administration, a whopping 97% of the total population aged 60-89 receive at least some Social Security benefits [1].

Maximizing your retirement income can be key to the healthy and happy retirement you have always wanted. When combining it with other retirement income, your Social Security benefits are an important part of making this a reality.

What many people don’t realize is there are some simple things you can do now to ensure when the time comes for you to take your benefits, your income is maximized. Below we have outlined six of the top Social Security maximization tips. If you follow all of these, you can potentially maximize your benefits and ensure nothing goes to waste.

Maximize your working income and work for at least 35 years.

Your Social Security benefits are calculated based on the 35 years in which you earn the most income. If you do not work for at least 35 years, each year less than 35 is counted as zero which can significantly reduce your benefits. The higher the income you earn up to $137,700 (as of 2020) the higher the Social Security benefits you will receive, so be sure to do everything you can to maximize your salary and earning potential.

Know your full retirement age and wait to collect Social Security benefits.

While the Social Security Administration technically allows you to start pulling benefits at age 62, this could dramatically reduce your benefits. For example, if you start taking payments at 62, you will only receive 75% of the annual amount you are eligible for. Worst of all, this reduction is permanent! 

It is important for you to understand your “full retirement age” as defined by the Social Security Administration. This is calculated by the age you are born and ranges between 65 and 67. You can find out your “full retirement age” by clicking here. It is at this age that you will receive 100% of eligible benefits. It is worth mentioning that you can also wait to take your benefits until up to age 70. If you wait until age 70, you will receive 132% of the benefits you are eligible for. In other words, for every year you delay past your “full retirement age”, your yearly benefits increase by about 8%.

Take advantage of spousal benefits.

When it comes time to start thinking about your Social Security filing strategy, it is important to understand what kind of spousal benefits you may be eligible for. If you are currently married, or if you are divorced and were married for at least 10 years, you may be eligible to reap spousal benefits. This means the ability to claim benefits based on up to 50% of your current (or ex) spouses benefit (at their full retirement age). This is especially important if one spouse earns significantly more money and is expected to see a much higher Social Security benefit. Being strategic on the timing that both you and your spouse claim your benefits is key. Be sure to find a trustworthy Social Security calculator online to determine the best course of action for you and your spouse to ensure that together, your lifetime benefits are maximized.

Claim family benefits.

When it comes time for you to file, if you have dependent children who are under the age of 19, they may qualify to receive up to 50% of your benefit. Note, this will not decrease your benefit amount, it will be added on top of it. You will want to keep this in mind when deciding on when to claim benefits as you should add this into your calculation for your lifetime benefit. For example, if you have one or multiple dependent children under the age of 19 when you turn 62, it may make sense for you to start claiming as soon as you are eligible vs. waiting for full retirement age. This is of course highly dependent on your unique situation, so be sure to crunch the numbers and find out what will work best for your family.

Minimize Your Taxes.

There is a common misconception that Social Security income is not taxed. Unfortunately, for many of us, this is not true. Depending on your overall retirement income, you could be required to pay taxes on up to 85% of your Social Security benefit. Taxes in retirement can add up to a significant sum of money and can greatly reduce your overall income in retirement. A key in maximizing your retirement income is doing everything you can to keep this as low as possible.

[1] https://www.ssa.gov/policy/docs/population-profiles/never-beneficiaries.html

Having a financial professional dive deep into each of these points while keeping your unique situation and financial history in mind is the key to maximizing your benefits. Simply Advised can put you in contact with a knowledgeable professional who can help.

Nine Questions to Ask a Financial Advisor in Your First Meeting

Nine Questions to Ask a Financial Advisor in Your First Meeting

Before you commit to hiring a financial advisor, it’s important that you ask the right questions. You’ll be working with this professional to achieve your financial goals—whatever they may be. You’ll want to feel confident that they’ll be able to guide you through important decisions and work with your best interest in mind. It’s crucial to be aware of their credentials, experience and knowledge.

Asking these nine questions will give you a good idea if they’re someone you’d be interested in working with. 

1. Are you a fiduciary?

A fiduciary works in the best interest of their client and puts their needs first. Non-fiduciary advisors may be selling their firm’s products/services to earn commission, which could skew their recommendations away from what fits you best.

2. Do you hold any industry certifications?

There’s a wide range of certifications financial advisors can hold. It’s important to understand the background of the person you could potentially be working with.

3. How are you compensated for your services? 

Financial advisors are compensated differently depending on the firm they work for. Whether it be an hourly or a flat fee, this is always a good question to ask so you know what to expect. 

4. What is your investment philosophy?

An investment philosophy will usually determine how your money will be handled. While one advisor might focus on long-term investing in a globally diversified portfolio and may encourage choosing only low-cost exchange-traded funds, another advisor might have an entirely different philosophy. Asking this will make sure you’re both on the same page. 

5. Is there a niche that you work with?

Everyone has different needs from their financial advisor. Make sure you’re working with someone who specializes in the area(s) you’re focusing on.

6. Do you have any account or relationship minimums? 

Depending on your portfolio size, some advisors might be a better fit than others. 

7. How often will we meet?

While this is pretty straightforward, it’s important for you and your advisor to be on the same page  in regard to how often you’ll meet—whether that be annually, semi-annually or quarterly. 

8. How will I hear from you?

You may have a preference of how you’d like to communicate, whether it be phone, email, video conference or in-person. Most advisors are more than happy to communicate with you in whichever method you prefer, just let them know! 

9. Do you have any references? 

Similar to looking for a job candidate, when you’re looking to find the perfect advisor you’ll want to know what others who have previously worked with them have to say.

While you should do your research ahead of time and use search tools to look into someone you’re going to potentially work with, it’s still good to get this information from the advisor themselves and make sure they’re transparent and truthful. 

At the end of the day, you’re creating a relationship. If hired, you’ll be trusting this professional with your financial future. This means you’ll want to be certain that this is the right advisor for you. Asking these questions may be a little uncomfortable, but having a clear understanding of an advisor’s expectations, qualifications and philosophies will be beneficial to both of you in the long run.

401(k) vs. Traditional IRA vs. Roth IRA

401(k) vs. Traditional IRA vs. Roth IRA

Which retirement account is best for you?

The world of personal investing, finance and retirement is filled with acronyms: traditional IRA, Roth IRA, 401(k), RMD, APR, ETF, FDIC and so many more. While they may seem intimidating, a degree in finance is not required to understand the three key retirement accounts that you likely already have access to: a traditional IRA, Roth IRA and a 401(k) plan. 

All three of these plans are considered “tax-advantaged” plans. This means your investments offer tax benefits in the form of tax exemptions or tax deferrals. As many know, taxes can eat up a significant portion of your retirement income and your retirement strategy should account for this. 

Understanding the differences between these accounts and knowing which one (or combination) is best for you and your family could be the key to a long-lasting and stress-free retirement.

401(k)

This is a plan that is generally offered through an employer. You can make tax-free contributions to this plan through automatic payroll withholding. Essentially, this plan automatically contributes or invests a certain percentage of your payroll each month. Depending on your plan, you can then set up these contributions to be allocated to different investments that your plan offers. You can contribute any percentage of your salary to this plan, but there are annual contribution limits. For 2020, if you are under 50 years old, the limit is $19,500. If you are 50 or older, you can contribute up to $26,000.

401(k) Pros

  • Income grows tax-free allowing for larger initial investments and potentially larger growth.
  • Many employers will match a certain amount of your contribution—essentially free money for you.
  • There is a large annual contribution limit which offers the largest tax advantage compared to Roth IRAs and traditional IRAs.
  • Distributions are potentially taxed when you are in a lower tax bracket in retirement.

401(k) Cons

  • Limited investment choices.
  • Distributions are taxed as ordinary income.
  • Due to the costs of running a 401(k) program, they often include high account fees.
  • You are required to start taking Required Minimum Distributions (RMDs) at age 72.
  • Early withdrawal fees if you take distributions prior to 59.5 years of age.

As a bare minimum, you should consider contributing enough to get 100% of the money your company will match. This is essentially “free money” you can use to invest in your future.

Traditional IRA

Individual retirement accounts, also known as IRAs, are similar to 401(k) plans as they’re both tax-advantaged investment vehicles. There are two main flavors of IRAs, the traditional IRA, and the Roth IRA. With a traditional IRA, similar to a 401(k) plan, you contribute pre-tax dollars. This allows your money to grow tax-deferred, meaning you do not pay taxes on your original contribution or your earnings until you start taking withdrawals. Contributing a larger amount of money up-front due to taxes being deferred not only allows you to potentially achieve higher lifetime returns (due to the power of compounding), but it also opens up the potential to pay taxes when you are retired—often in a lower tax bracket.

Traditional IRA Pros

  • Income grows tax-free, allowing for larger initial investments and potentially larger growth.
  • No income limits.
  • Invest in any accounts offered by your brokerage (stocks, bonds, ETFs, mutual funds, etc.).

Traditional IRA Cons

  • Early withdrawal penalty if you withdraw before age 59.5.
  • Distributions are taxed as regular income.
  • Strict total IRA (Roth + traditional) contribution limit of $6,000 if under 50 and $7,000 if 50 or older per year.
  • Required Minimum Distributions (RMDs) are required starting at age 72.

At the end of the day, determining which IRA makes the most sense for you likely comes down to the tax bracket you expect to be in during retirement. If you believe you will be in a lower tax bracket than you are now, it likely makes sense to max out a traditional IRA. This will allow your money to grow tax-free until you take distributions when you are in that lower tax bracket.

Roth IRA

The key difference between a traditional IRA and a Roth IRA is the timing of the tax advantage. With a Roth IRA, you contribute your money post-tax, meaning you pay taxes on the income, and can then invest your money in the account. The benefit comes on the back end. When you withdraw your money, you generally do so tax-free. Another key difference is that Roth IRAs have income limits. This means that if your Modified Adjusted Gross Income (MAGI) is over $124,000, your total contribution limit phases out based on your income. If your MAGI is over $139,000 you are no longer eligible to contribute to a Roth IRA.

See the two charts below that display 2020 contribution limits for all three tax-advantaged accounts, as well as a breakdown of the income limit phase for Roth IRAs.

If your income or your joint income place you in the “phases out” category, you can learn how to calculate your Roth IRA contribution limit using the IRS formula here.

Contribution limits of IRA, Roth IRA and 401(k)

2020 Contribution Limits Traditional IRA Roth IRA 401(k)
Combined limits in all IRA accounts: $6,000 or $7,000 if 50 or older

If under age 50: $19,500

If 50 or older: $26,000

Roth IRA income limits and phase out

Filing Status 2020 MAGI Contribution Limit
Single Less than $124,000 $6,000 ($7,000 if over 50 years old)
$124,000 to $138,999 Phases out
$139,000+ Not eligible
Married Joint Filing Less than $196,000 $6,000 ($7,000 if over 50 years old)
$196,000 to $205,999 Phases out
$206,000+ Not eligible
Married Separate Filing Less than $10,000 Phases out
$10,000+ Not eligible

 

Roth IRA Pros

  • Earnings grow and are withdrawn tax-free.
  • Contributions can be withdrawn at any time tax-free.
  • No Required Minimum Distributions (RMDs).

Roth IRA Cons

  • Taxes are paid upfront, and earnings grow off of post-tax dollars.
  • Income limits may reduce the amount you can contribute.

If you believe you will be in a higher tax bracket when you are ready to withdraw from your account and your income level allows it, the common practice is to max out your Roth IRA. This will allow your money to grow and be withdrawn tax-free once you are ready in retirement.

The most common strategy people take when it comes to retirement accounts is to start with their 401(k) and contribute up to what their employer will match. From there, depending on their income situation, they generally max out their Roth IRA, traditional IRA or a combination of both. If they still have money left over, the next step would be to max out their 401(k) to the total limit. Finally, if they still have money left over to invest, it is recommended to explore a traditional investment (stocks, bonds, ETFs, mutual funds, etc.). However, these investments are not tax-advantaged.

What is right for you?

Where to contribute your retirement funds can be an incredibly complicated, but also a very important decision. What works best for one individual or family does not always work best for the next. Simply Advised works with hundreds of financial professionals nationwide who can review your personal situation and help recommend what the best solution is for you.

Six Common Social Security Questions

Six Common Social Security Questions

While the majority of Americans will collect Social Security at some point in their lives, not everyone fully understands the program. This program, which is often a vital part of a person’s retirement plan, is notorious for being confusing. Taking the time to gain a deeper understanding of Social Security can help you maximize your benefits and avoid benefit reductions. 

Whether you’re looking to claim your benefits in the near future, or you’re years away from retirement, it’s in your best interest to gain a fundamental understanding of Social Security.

While the majority of Americans will collect Social Security at some point in their lives, not everyone fully understands the program. This program, which is often a vital part of a person’s retirement plan, is notorious for being confusing. Taking the time to gain a deeper understanding of Social Security can help you maximize your benefits and avoid benefit reductions. 

Whether you’re looking to claim your benefits in the near future, or you’re years away from retirement, it’s in your best interest to gain a fundamental understanding of Social Security.

1. What is it?

Social Security is a program created in 1935 to provide retirement income to Americans. It’s still used today by most Americans once they reach a certain age. Some use it in conjunction with other retirement income sources and some use it as their only income stream.  

Currently, the system works like this: every time you receive a paycheck for working, a portion of the taxes you pay go towards Social Security. This money is then reallocated back to Americans who are collecting their benefits.

2. How are benefits determined?

Not everyone receives the same benefits. Your benefits are determined by how many credits you earn during your working years. Essentially, the more you make the more credits you receive. As of 2020, a credit is defined by $1,410 in income, and you need to earn 40 credits to qualify for benefits. 

Once you qualify, the Social Security Administration (SSA) uses a formula to determine your benefits. They look at your highest 35 years of average earnings. This is then used to determine your Average Indexed Monthly Earning (AIME). Once you have your AIME, you can apply it to the Social Security benefits formula. 

3. When should I claim?

When you claim your Social Security benefits is completely up to you and is different for each person based on their unique financial history. If you claim at your full retirement age (FRA) you’ll get your standard benefit. Your FRA is designated by the law and is based on the year you were born. Filing even a month early could lead to early filing penalties which reduce your benefits. Waiting to claim past your FRA has advantages, too. If you wait, you earn delayed retirement credits every month until you turn 70—leading to a bigger check from Social Security.

4. Does working affect benefits?

Many retirees choose to pick up a part-time job after they’ve claimed their benefits. If you’ve reached full retirement age, you can work without affecting your Social Security benefits. However, if you’re under FRA and receiving your benefits, you could forgo a portion of your benefits (temporarily) if you’re earning too much. In this case, once you do reach FRA, your monthly check will be recalculated to account for the lost benefits.

5. How do spousal benefits work?

As with any aspect of Social Security, spousal benefits are a bit confusing and come with many stipulations. If you’re unfamiliar with spousal benefits, they work like this: current spouses and ex-spouses (who were married for over 10 years and are not remarried) are eligible to receive equal to half of what their spouse earns if it’s higher than their own.

In certain cases, when someone dies, their Social Security benefits may be available to their current or former spouse. You can also collect spousal benefits without a death occurring. In order to qualify for spousal benefits, the spouse with a work record must already be receiving their benefits and the other spouse must be at least 62. If your spouse dies, you can collect a survivor’s benefit as early as age 60.

6. Do I owe taxes on Social Security benefits?

You may owe taxes on your Social Security benefits based on your income. If it’s above a certain threshold, you could be taxed on up to 50% of your benefits. 

If you’re a single filer, this threshold is $25,000 to $34,000 of countable income per year. If you make more than that as a single filer you could owe even more in taxes (up to 85% of your benefits). If you file jointly, this income threshold is $32,000 to $44,000. As with single filers, if you make more than that in countable income you’ll be taxed even higher. 

Again, with any aspect of Social Security, tax rules for benefits are complicated and conditional.

When to claim, deciding to work after claiming, tapping into spousal benefits and understanding how your benefits will be taxed are all extremely important if you’d like to get the most out of Social Security.

Keep in mind that we’ve provided surface level answers to these common Social Security questions. Having a professional dive deep into each of these questions while keeping your unique situation and financial history in mind is the key to maximizing your benefits. Simply Advised can put you in contact with a knowledgeable professional who can help.

Five Ways to Minimize Your Taxes In Retirement

Five Ways to Minimize Your Taxes In Retirement

While many choose different paths for their retirement, there is one thing that stays constant: taxes. No, taxes don’t stop once you’re retired. They’re probably even more important to keep an eye on during retirement as you’re on a fixed income—meaning you don’t want to pay the IRS any more than need be.  Let’s start with the basics—what’s taxable and what isn’t? The short answer is basically everything. This includes work income, regular investments, IRAs and 401(k)s.  When you’re planning for retirement it’s important to understand exactly what and how things are taxed. Whether you’re just starting the planning process or already retired, there are things you can do to lower your taxes and keep more of your hard-earned money. 

1. Have a variety of retirement accounts.

By having a diverse pool of retirement accounts, you can use them to balance your withdrawals in a tax-friendly way. If you have a mix of taxable and non-taxable accounts, you can pull from your non-taxable accounts when your income is high and draw from the taxable accounts when it’s lower. Basically, you want to draw money from your sources in a way that cuts your taxes in the best way possible.

2. Minimize taxes on Social Security.

Depending on your income, your Social Security benefits can be taxed. If you’re single and your income is less than $25,000, or if you’re married and your income is less than $32,000, your benefits aren’t taxable. If you make more than this amount, you can be taxed on up to 85% of your benefits.  You can avoid this by either not working, only working enough to make less than the amounts listed above or by delaying your benefits for as long as possible. 

3. Plan for estate taxes.

Estate planning can be complicated, but avoiding it can result in a nightmare for your loved ones. It’s important to have a plan in place that’s mindful of estate tax—it can be as high as 40%. Considering this, structuring your estate plan in a way that reduces the amount of potential taxes your estate will owe is crucial. Proper planning can keep your assets in the hands of your heirs and not tax collectors. 

4. Pay off your mortgage before retiring.

A great way to minimize your expenses and therefore taxes, is to pay off your mortgage before retiring. A mortgage payment is often a person’s largest monthly expense. By eliminating this expense, you’ll reduce how much income you’ll need to achieve within a tax year. It will also allow you to have more flexibility in retirement as it’s difficult to minimize your taxes when you need to withdraw a large amount of money each month to pay your mortgage. However, we know that for some this is no easy feat. Another option is to try and get your mortgage payment down as much as possible.  

5. Choose where you live wisely. 

Some retirees decide to relocate for various reasons—wanting to be closer to family or friends, wanting better weather or perhaps for a change of pace/scenery. Whatever the reason is, it’s important to be smart when choosing this location as it can affect your taxes. Some states have lower income levies combined with fair rates for sales and property taxes, while others don’t impose income taxes at all! While taxes shouldn’t be an end-all be-all reason for moving somewhere, they’re worth taking into consideration.

While these are just a few options, there are a plethora of ways you can get your taxes in check during retirement. Keeping your taxes low means you’ll have the ability to spend your retirement income exactly how you’ve always wanted to. Consulting a professional to really drill down into your unique situation is extremely worthwhile if you’re not well versed in the world of taxes. Simply Advised can help you find a local, knowledgeable and trusted financial expert to guide you through the tax minimization process.
Estate Planning – Canada

Estate Planning – Canada

Finance

Estate Planning – Canada Seminars

Worrying about your legacy and how it will affect your loved ones is only natural, and having an estate plan in place that both considers your individual goals and is designed to maintain family harmony is essential. Without the proper planning, you could leave your assets completely vulnerable to unintended consequences. By creating a strategic plan, you can set yourself up to leave a legacy that reflects your goals, beliefs and values.

estate planning canada

You’ll Learn About:

Wealth Management

We’ll discuss preserving and enhancing the value of your estate and opportunities for tax deferral or minimization.

Wills

We dive into the basics of wills – including when you should make one and when/who should review it. Also, how to choose an executor.

Probate

We’ll cover what probate is and how you could potentially avoid it.

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