Introduction

Welcome back to another Cardinal lesson! Today, we dive into the third part of our four-part series on Social Security planning, featuring Tom and Chelsey. Tom, an MD, and Chelsey, a devoted stay-at-home mom, face unique challenges as they plan for retirement. In our previous episodes, we crafted a comprehensive income plan and explored a Roth conversion strategy. Today, we unravel the complexities of delaying Social Security—a critical decision that could significantly impact their financial future.

Understanding the Importance of Social Security

Social Security stands as one of the most crucial decisions retirees face. For Tom and Chelsey, this decision isn’t just about maximizing monthly benefits; it’s about ensuring financial security for their entire retirement, potentially affecting Chelsey’s income as well.

Tom and Chelsey’s Financial Landscape

Tom and Chelsey possess substantial assets:

• $750,000 in taxable brokerage accounts
• $2.5 million in a traditional IRA
• $230,000 in cash reserves
• A projected monthly spending requirement of $12,000

With Tom’s recent retirement and the sale of his medical practice, their income now hinges solely on their investments and planned Social Security benefits.

Initial Retirement Strategy: Taking Social Security at 65

Initially, Tom and Chelsey planned to start receiving Social Security benefits immediately upon Tom’s retirement, expecting around $4,471 per month collectively. This decision aimed to supplement their income needs, primarily drawn from their cash and taxable accounts while deferring withdrawals from their tax-deferred IRA until age 75, to minimize tax implications.

Reevaluating the Strategy: Delaying Social Security until Age 70

Upon deeper analysis, we recommended a strategic shift: delaying Social Security until age 70. Here’s why:

• Higher Monthly Benefits: Social Security benefits grow by 8% annually if deferred beyond full retirement age (FRA). By waiting until 70, Tom and Chelsey could potentially increase their monthly benefits significantly.
• Long-Term Financial Security: Delaying benefits not only boosts their monthly income stream but also provides a higher base for future cost-of-living adjustments, crucial for maintaining purchasing power over their retirement years.
• Survivor Benefits: Considering longevity and potential survivorship, delaying benefits ensures Chelsey receives a higher surviving spouse benefit, enhancing her financial resilience after Tom’s lifetime.

Implementing the Strategy: Using Annuities

To bridge the income gap during the deferral period, we proposed a tailored solution:

• Immediate Annuity: We recommended a single premium immediate annuity to generate $12,500 per month for five years. This annuity covers their income needs while Social Security benefits are deferred.
• Long-Term Annuity Strategy: Post-deferral, we advised purchasing a $1 million annuity from their IRA, yielding approximately $112,100 annually. This combined with enhanced Social Security benefits and strategic investment withdrawals ensures sustained income throughout their retirement.

Visualizing the Plan: Utilizing Financial Planning Software

Using our advanced financial planning software, we modeled the impact of delaying Social Security and integrating annuities into their retirement strategy:

• Cash Flow Analysis: Year-by-year projections illustrate how delaying Social Security optimizes their income while minimizing tax exposure.
• Survivorship Planning: Demonstrating the financial benefits for Chelsey in the event of Tom’s early passing underscores the importance of strategic delay.

Conclusion

Delaying Social Security isn’t merely a financial tactic; it’s a foundational strategy for securing Tom and Chelsey’s retirement future. By leveraging advanced planning tools and personalized strategies, we’ve tailored a solution that maximizes their Social Security benefits, ensures financial stability, and prepares them for a resilient retirement.

Next Steps

Stay tuned for our final episode, where we explore long-term care planning, IRA strategies, and estate planning considerations for Tom and Chelsey. We’ll continue to navigate their financial journey, addressing comprehensive retirement needs to achieve their desired lifestyle and legacy goals.

Thank you for joining us on this insightful exploration of Social Security planning with Tom and Chelsey. For more detailed insights and tools used in this series, visit our website or check out the accompanying video for visual aids and further explanations.

About Cardinal Advisors

At Cardinal Advisors, we specialize in crafting personalized financial plans that empower individuals and families to navigate retirement with confidence. Contact us today to schedule your consultation and embark on your journey toward financial security.