The Differentiators of Wealth - Flipbook - Page 15
Taxes and Risk
anywhere in between) is typically around age 80. That means
waiting until age 70 will result in more overall income as long as
you live past age 80. Of course, there are few who know exactly
when their life will end, at least none that I have met. This makes
planning and projections an inexact science. However, there are
other factors that must be considered.
Inflation affects our economy and personal lives on a daily
basis. Social Security includes the annual cost of living
adjustments to help offset the impact of inflation on retirees. In
2021, that adjustment was a whopping 5.9%. Unfortunately, actual
inflation was closer to 8%. Social Security adjustments will
always lag behind inflation. This means that the income received
in the future will not be worth the same as the money being
received now. The longer benefits are delayed, the greater the
impact of inflation.
The other problem is that the Social Security system has been
failing for some time. The Social Security Administration has
warned that starting in 2033, only 78% of benefits will be able to
be paid. This is based on current law. Additional funds will likely
be found by printing more money or increasing taxes. Regardless,
it is almost always better to take Social Security sooner rather than
later unless:
1. You are still working. If you have more than roughly
$20,000 of earned income, your benefit will be reduced (by $1 for
every $2 you earn above the limit, which adjusts each year). The
amounts withheld will be included in later payments, but it is
generally not worth starting Social Security unless your income is
less than the threshold. The restriction only applies to earned
income until you reach your full retirement age. Once that age is
reached, you can earn as much as you want without any benefits
being withheld.
2. You are doing tax planning. Roth conversions and other
tax planning strategies are typically more efficient before adding
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