When to Pull From Your IRA Before Claiming Social Security

hi I'm Christine Benz for morningstar.com many retirees tap their Social Security benefits at their full retirement age or even earlier while leaving their IRAs until later in retirement but IRA expert Eadie slot believes that the opposite sequence can make more sense in certain situations he's here to discuss that topic he is the author of the newly revised retirement decisions guide and thank you so much for being here great to be here thanks in your newly updated retirement decisions guide which factors in all of the new tax code you have a section about Social Security and IRAs and how the two work together and a point you made resonated with me which was that a lot of investors kind of flipped this where they take Social Security at full retirement age or a lot of them take it even earlier when they're first eligible and they delay tapping their IRAs you think there's a reason to consider the opposite sequence where you delay Social Security recede and potentially pull from the IRA sooner why would that be well you have to integrate when the paychecks stop you have basically these two sources left that people don't work together on they look at them as separate issues I have my IRA and I have my Social Security now I think by now everybody knows with Social Security if you hold off to age 70 you get more right you have the cost-of-living increases say 8% it's like having an account that's growing 8% plus cost of living increases about a know that could be 2 3% so you could be talking about 10 percent guaranteed higher checks for the rest of your life if you hold off to age 70 so I say if you need the money take from the IRA during your 60s if that's enough and if you do need the money it means you're probably in a lower tax bracket so it won't cost you that much plus you're bringing down that taxable money and you'll get a bigger check with Social Security starting at age 70 and a half or 70 and a half for a time and age break or if it's all security at 72 different things right at age 70 with Social Security you at the higher check for the rest of your life that's locked in and I don't wait past 70 because you can't get any more after that but that's a big deal because now you have that guaranteed highest check for the rest of your life and that worst Social Security is only taxed I say only 85% that it sounds like a lot but IRAs are taxed a hundred percent so I'd rather have the money that's less taxed more of that going into retirement okay so are there any obvious situations though where that sequence of potentially tapping the IRA first and delaying Social Security receipt where that doesn't make sense any sort of pro ll some individuals I think it's more psychological once you're eligible people want that money I know people in my own family I've said don't do that no no but I why would I give that up that's another year I didn't have money for that it's just why would I give up something I could have now to have more later and remember when you're talking about retirement planning you're talking about even at age 70 people live to 90 100 years old the great thing about Social Security benefits other than a savings account like an IRA I call Social Security like renewable resource it never runs out you spend it it comes right back next month you spend it it comes right back next month it's guaranteed income for life not so with a savings account sure you could draw from a savings account but you could draw it down and also if you draw from a savings account and I include a retirement account you you have the tax of course but if you're withdrawing in a declining market then you have what's called that sequence of returns risk where you really start losing boatloads of money that you can't make back in retirement because you have no more paychecks but if you need money in those years in the 60s once you reach full retirement age or even before you could take it there are penalties but then take the money you don't think you're gonna live that long you have health issues there are reasons everybody has a different situation but all things being equal you're healthy you can live on the IRA during your 60s you generally better off waiting till age 70 to start throwing on the highest social security check for the rest of your life okay so you mentioned sequence of return risk which is such an important concept in the retirement planning space and that basically means that you encounter that lousy market environment right out of the box when you retire so is that potentially a risk for retirees today I mean I guess we don't want to get into market timing but the market has been going up for the better part of ten years yeah but there's something called gravity so realistically this it's all timing nobody knows right look look at people who chose to retire because it was their time in 2008 they retired at the worst possible time when the market was in freefall right that is not the time you want to start drawing from investments in a market you can never recover so yes then that equation shifts you might be better off leaving that money the money invested in the market leave it there to rebound and take the Social Security if you need it just so you don't have to touch money in a falling market right or at a minimum perhaps line up some more conservative right investments within that IRA so that you are leaving your equity holdings to recover right right okay and thank you so much for being here an important topic thanks for discussing guys thanks for watching I'm Christine Benz for morningstar.com [Music]

Channel: Morningstar, Inc.

Views: 126,928

Keywords: morningstar, investing, stocks, funds, etfs, mutual, market

Id: IFiTY6Xm3p0

Length: 5min 51sec (351 seconds)

Published: Wed Aug 08 2018