Should You Delay Social Security and Spend Down Your IRA First?
One of the most debated retirement planning questions is whether you should claim Social Security as early as possible or delay benefits while spending money from your IRA to cover living expenses.
At first glance, taking Social Security early seems logical. Why leave money on the table? After all, you’ve paid into the system for decades. However, retirement planning is rarely that simple. In many cases, delaying Social Security while strategically withdrawing from retirement savings may improve long-term retirement outcomes.
The challenge is that this strategy can feel uncomfortable. Watching an IRA balance decline during the first years of retirement can be emotionally difficult, even if the long-term math works in your favor.
Let’s examine how this strategy works, who it may benefit, and the factors retirees should consider before making a decision.
A Common Retirement Scenario
To simplify the discussion, consider a hypothetical retiree with the following characteristics:
- Age 65
- Single
- $300,000 in retirement savings
- No pension
- Needs approximately $3,500 per month ($42,000 annually) to live comfortably
- Average or longer-than-average life expectancy
In this example, the retiree has two primary sources of income:
- Social Security
- Retirement savings such as an IRA
If Social Security benefits begin immediately, the retiree receives a smaller monthly benefit but preserves more of the IRA. If benefits are delayed, the retiree must rely more heavily on IRA withdrawals in the early years but locks in a significantly larger guaranteed income stream later.
This tradeoff is where retirement income planning becomes both mathematical and emotional.
How Delaying Social Security Increases Lifetime Benefits
Social Security benefits grow for every year you delay claiming beyond your eligibility age, up to age 70.
For many retirees, the difference between claiming at age 65 and waiting until age 70 can be substantial. In some situations, annual benefits can increase by nearly $20,000 per year compared to claiming earlier.
While exact numbers vary, the concept remains the same:
- Claim earlier = smaller monthly benefit for life
- Claim later = larger monthly benefit for life
Many people focus only on the years of benefits they “miss” while waiting. However, the larger monthly benefit often changes the retirement income picture dramatically after age 70.
The Hidden Advantage: Creating More Income Stability Later
One of the strongest arguments for delaying Social Security is that it can reduce pressure on investment accounts later in retirement.
Consider two retirees with identical expenses.
Retiree A claims Social Security early and receives a smaller monthly benefit. As a result, they must consistently withdraw larger amounts from their IRA every year to make up the difference.
Retiree B delays Social Security and receives a significantly larger monthly benefit beginning at age 70. Once benefits start, their need for IRA withdrawals may decline dramatically.
This larger guaranteed income source can provide what many advisors call “breathing room.”
Instead of constantly relying on portfolio withdrawals, retirees may find that Social Security covers a larger percentage of their living expenses, allowing remaining investments to grow or last longer.
The Emotional Challenge of Spending Your IRA First
The biggest obstacle to this strategy often isn’t mathematics—it’s psychology.
Many retirees spend decades building retirement savings. Then, immediately after retiring, they’re asked to start spending those assets.
That feels uncomfortable.
Watching an IRA decline from $300,000 to $250,000 or $200,000 can trigger anxiety, even when the withdrawals are part of a carefully designed plan.
Retirees frequently worry:
- What if I run out of money?
- What if the market crashes?
- What if I need this money later?
- What if I die before collecting enough Social Security?
These are valid concerns.
The reality is that retirement planning isn’t simply about maximizing returns. It’s also about creating a strategy that aligns with your comfort level and risk tolerance.
A mathematically optimal strategy that causes constant stress may not be the right strategy for a particular retiree.
Understanding the Break-Even Point
One of the most common arguments against delaying Social Security involves the break-even point.
The reasoning goes something like this:
“If I delay benefits for five years, how long will it take before the larger payments make up for the benefits I didn’t receive?”
For many retirees, that break-even period can be eight to ten years or longer.
While break-even analysis is useful, it often oversimplifies the decision.
The calculation usually ignores:
- Tax considerations
- Investment performance
- Inflation adjustments
- Longevity risk
- Future withdrawal needs
- Survivor planning considerations
The break-even point is one factor—not the only factor.
The Power of Cost-of-Living Adjustments (COLAs)
Another important consideration is inflation protection.
Social Security benefits receive periodic cost-of-living adjustments (COLAs).
When you delay Social Security, you’re not simply increasing today’s benefit. You’re increasing the base amount on which future COLAs are calculated.
That distinction matters.
A 3% inflation adjustment applied to a larger benefit creates larger dollar increases throughout retirement.
Over a retirement that may last 20 to 30 years, these increases can compound significantly.
This helps preserve purchasing power and may reduce dependence on portfolio withdrawals during later retirement years.
What About Leaving Money to Your Children?
Another concern retirees often express is legacy planning.
If you spend down retirement assets to delay Social Security, doesn’t that leave less money for heirs?
The answer depends largely on how long you live.
If you pass away shortly after retirement, claiming Social Security early may appear advantageous because more retirement assets remain untouched.
However, if you live well into your 80s or 90s, the opposite outcome can occur.
A larger Social Security benefit may reduce portfolio withdrawals for decades, potentially allowing remaining assets to stabilize or even grow.
This is one reason retirement planning should incorporate realistic longevity assumptions rather than focusing only on short-term outcomes.
The Tax Advantage Many Retirees Overlook
Taxes are often the most overlooked part of the Social Security decision.
Many retirees focus exclusively on benefit amounts while ignoring how different income sources are taxed.
Traditional IRA withdrawals are generally taxable as ordinary income.
Social Security, however, receives more favorable tax treatment.
Even when Social Security benefits become taxable, a portion of those benefits may remain tax-free.
This creates a meaningful difference over time.
For retirees who rely heavily on traditional IRAs, shifting more future income toward Social Security may create tax efficiencies that are often missed in simple break-even calculations.
Additionally, delaying Social Security can create planning opportunities during the gap years between retirement and age 70.
Roth Conversion Opportunities
Many retirees retire before required minimum distributions (RMDs) begin.
This period can create a valuable tax-planning window.
Without Social Security income, some retirees may be able to perform strategic Roth conversions while remaining in relatively favorable tax brackets.
Converting portions of a traditional IRA to a Roth IRA during these years may:
- Reduce future RMDs
- Lower future tax exposure
- Create tax-free income opportunities later
- Provide greater flexibility during retirement
Once Social Security starts, available room within lower tax brackets may shrink, making Roth conversions more expensive.
When Delaying Social Security May Make Sense
Delaying benefits may be worth exploring if:
- You expect to live an average or longer-than-average lifespan
- You have sufficient retirement assets to bridge the gap
- You want more guaranteed lifetime income
- You value inflation-adjusted income
- You are concerned about longevity risk
- You want additional Roth conversion flexibility
- You can emotionally tolerate spending retirement savings early in retirement
When Claiming Earlier May Be Appropriate
Claiming earlier may deserve consideration if:
- You have significant health concerns
- You have a shorter life expectancy
- You need the income immediately
- You have limited retirement assets
- You strongly prefer preserving investment accounts
- You are uncomfortable with portfolio drawdowns
There is no universal answer.
The best claiming strategy depends on your unique combination of income needs, assets, taxes, health, family circumstances, and retirement goals.
Retirement Planning Requires Personal Analysis
One of the biggest mistakes retirees make is looking for a simple rule.
Some people insist everyone should claim Social Security at 62. Others argue everyone should wait until 70.
Neither position is correct.
Retirement planning works best when decisions are made within the context of a comprehensive income plan.
The Social Security decision should be coordinated with:
- IRA withdrawals
- Tax planning
- Investment strategy
- Roth conversions
- Legacy goals
- Healthcare considerations
- Longevity planning
When these pieces work together, retirees often discover opportunities that aren’t obvious when viewing Social Security in isolation.
Frequently Asked Questions
Should I delay Social Security and spend my IRA first?
For some retirees, delaying Social Security while withdrawing from an IRA can increase guaranteed lifetime income and reduce future withdrawal needs. However, the strategy depends on health, longevity, taxes, and overall retirement assets.
Is delaying Social Security always the best option?
No. Individuals with shorter life expectancies, immediate income needs, or limited retirement savings may benefit from claiming earlier.
What is the Social Security break-even point?
The break-even point is the age at which cumulative benefits from delaying Social Security exceed the benefits that would have been received by claiming earlier.
Does Social Security have tax advantages compared to IRA withdrawals?
Yes. Traditional IRA withdrawals are generally fully taxable, while Social Security benefits often receive more favorable tax treatment.
Can delaying Social Security help with Roth conversions?
Potentially. Retirees who delay Social Security may have more room within lower tax brackets to perform Roth conversions before benefits begin.
How does delaying Social Security affect inflation protection?
Delaying increases the base benefit amount, which means future cost-of-living adjustments are applied to a larger benefit.
Final Thoughts
The decision to claim Social Security or delay benefits is one of the most important retirement income choices you’ll make.
While delaying benefits can create a larger guaranteed income stream, improved inflation protection, and potential tax advantages, it requires careful planning and emotional discipline.
The right answer isn’t determined by a generic rule or online calculator. It’s determined by how Social Security fits into your complete retirement income strategy.
Before making a claiming decision, consider running a personalized analysis that incorporates taxes, withdrawals, longevity assumptions, and your overall retirement goals. The results may surprise you.
Source material adapted from a Dolphin Financial Group retirement planning discussion regarding Social Security claiming strategies and IRA withdrawal planning.
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Item #1
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should you delay your Social Security and then raid your IRA in order to live we’ve done shows on this in the past but I’m going to get a little bit more specific because a lot of the commentary and phone calls I get from that show is leading me to believe that we need to get a little bit more specific with the scenario and I’m going to bring on my co-host Tony short Tony you know we’ve done this show before and the concept is delay social security for as long as you can and
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in the meantime you take from your retirement savings to live right and it’s a controversial topic because there’s a lot of emotions involved in this and I think there’s a lot of misinformation in this so what I want to do today is talk specifically about some of the points that people were making when they watched that show so let me get more specific on the scenario now right but we you had a lot of questions too from that show Dan and we’re address I mean that that show it’s been a while but
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that show raised a lot of people are like yeah but what about this what about that right what abouts exactly we’re gonna cover we’re gonna attack those today right and you know that the main reason huge reason to delay social security for a lot of people is to protect their spouse so if you have a spouse and you’re thinking about claiming Social Security at 62 or early or you think your spouse is planning to do so watch the show I’ll put it up here on benefits for a spouse or exp spouse or
00:01:33
Survivor because those are a big factor but in this scenario today we’re going to talk about you’re not you’re eliminating the spouse I’m no wait no let me let me rephrase that I’m not telling you to eliminate your spouse we got to be careful nowadays I’m telling you we’re eliminating the spouse from the equation because that’s a huge Factor on delaying but let’s say you’re single and or that your spouse isn’t an issue because they have high social
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security or a similar or a similar benefit maybe you have equal earnings or you know whatever so let’s eliminate the spousal discussion because that’ll clean this up a little bit let’s also eliminate the discussion of Dan if I get past 75 it’ll be a miracle you know so let’s eliminate the low life expectancy uh scenarios okay because it’s really not a good case to delay Social Security to 70 if you’re only going to live to 72 right so let’s eliminate the life expectancy let’s
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assume that you’re single and you’re going to live average or longer life expectancy which is what is that you know that’s probably right now uh for an 65y old you’re probably going to average age 82 for a male and 85 is 84 for a female or something along those lines and then let’s also eliminate the people that say I don’t even need the money so I’m just going to take it and invest it no we’re going to talk about someone that they need this income to live all right so let’s get even more
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specific and say you’re 65 you have 300,000 in retirement savings nothing else you have your you know your expenses are $3,500 to live now someone’s like 3500 that’s not you know that’s what 50,000 bucks that’s not a lot uh 45,000 that’s not a lot well I’m just it may not be your scenario but I’m trying to get it down to a point where we’re focused on uh a very specific type of person here right and this is very common this is very common for people you might have more or less
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than 300,000 um but all right so this is the scenario they’re 65 years old now I by doing 65 instead of 62 I’ve eliminated the whole Affordable Care Act subsidies that’s a whole different question I’ll put a show up there in case you’re like well how am I going to pay for health insurance and I don’t have Medicare income matters when you take Social Security matters so if you take Social Security at 62 and you go on a healthcare subsidy you can’t hide that income you can’t control it so but we
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eliminate that discussion that’s a different topic all right so I’m really ning it down Tony all right so you’re 65 years old and you’re done working now you need that 3500 a month to live and you have two options you turn on Social Security and you start claiming that to help with the 3500 a month or you pull from your IRA or a combination of both that’s it that’s those are your options Rich Uncle Tony’s not going to be sending you money so let’s imagine that your social
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security benefit is $2500 at your full retirement age so it’s clearly not enough to to only have social security so you’re going to have to pull from your IRA at some point right so let’s get specific let’s say at age 65 your Social Security is $27,000 a year okay that’s not enough to live but it helps but if you wait till 70 and let’s be dramatic and wait five years that’s going to be 47,700 so it’s an extra $20,000 a year now when you when you’re at say 71 the
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difference is only 16,000 and let me explain why that is so well if I take 27,000 a year now and I can get 47 at 70 that’s a and this is this is like real numbers these are like based on um the cost of living increases but also the um delayed retirement credit you get the 8% growth right so it’s saying oh I get 20,000 a year more at 70 no it’s not going to be that much more because your Social Security that you take at 65 will continue to grow it’s not going to stay at 27,000 it’ll grow as well oh that’s
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true because of the cost of Liv living adjustment the C that’s right that’s right so the real you know good estimate difference is about $166,000 a year difference later on but that’s going to continue to grow that difference is going to grow because the cost of living on a higher number is going to just widen the Gap but fundamentally what you’re doing is like okay I still need to take out I’m still foregoing $27,000 plus Cola a year for five years that’s like $150,000 that I’m not gonna get from
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Social Security just so that I could turn on later and get a higher number right so why would I do that if I’m only going to get an extra 16,000 that’s you know eight nine years it’s going to take me just to get back to where I was right to the break even point right and break even point is definitely I I don’t like using it it’s you know it’s too simplified there’s a lot more that go into it that that I want to talk about sure but if you’re single Break Even Point does matter more than if
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you’re married so here are the key Concepts that I want to go through um there’s three or four um you got investment capacity and tolerance so I’ll tackle that one first and then we’re going to talk about the cost of living and then the death benefit and then finally taxes because you can’t get away without talking about taxes so here’s the first point and stick this is this is my main driver for a lot of people to delay Social Security and raid their Ira because it’s not easy but
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I think the math shows uh it’s valuable consideration and here’s why having a larger Baseline income at 70 or 68 or when you delay having a larger Baseline income from Social Security gives your Investments your other retirement savings some more breathing room I’m in it so you if you still need $45,000 to live and if you take it at 65 you’re getting 25,000 you’re short 20 every year whereas if you wait till 70 and you turn it on and you get 40,000 from Social Security now you’re only
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short about 5,000 you know when you start adding so when you finally do turn on Social Security you got a lot more breathing room because you don’t have to continually tap as much from your IRA yeah but in the mean time Dan if you’re suggesting to take from your IRA and let Social Security grow as some people have done you’re going to watch you’re going to have to go through the emotional turmoil of watching that account deplete when you first retire and watching that amount go down and down and down and a
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lot of people watch that balance and they panic I mean I know that as a fact I mean from family that I have that are retired uh they’re very I don’t have enough money and I’m like you have a lot of money you don’t even need to worry I mean they’re in their I have people in their 80s that I know 87 years old I know someone and uh they have you know maybe just under a million dollars in their you know IRAs and they’re panicked and they’ll Panic if it goes down at all because it’s went
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down if it goes down at all the government’s making me take money out with RMDs I hate it I so wouldn’t it be worth it wouldn’t it be worth it to just take Social Security so you take less from the IRA well that’s the whole point right and my thought is well I don’t know everyone’s situation different but you’re right you bring up the biggest problem which is people have a difficult time spending down their IRA and we’ve done shows on how it’s difficult for people to spend their
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money in general let alone have that Ira so if you need 40,000 to live and you have no social security because you’re delaying it and you take 40,000 a year out for five years right now all of a sudden we’re like where did that 200,000 go well you spent it to live and just to see your account go down by that it you’re right it’s a painful that’s why I put on there you must be willing to accept that initial drop or you’re taking it out right away H you’re taking it out and letting your Social
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Security grow for those first two years and then you watch the you’re taking all this money out uh and the market then after a year of doing that hits record highs you’re like I would have had that much more in there of course right hindsight Monday Morning Quarterback it’s like oh I should have just I should have just fed cut the interest rates and the markets hit a record high and but I didn’t have very much I didn’t have nearly as much in there because I’ve been using it to live on right and
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so this is the key it’s if you don’t need the money yeah that’s an easy thing to say but you need that money you need to live right so you’re GNA be spending it from somewhere but you’re right there’s still the what if the reverse happens what if the market goes down even worse and now you’ve taken social security locked in that lower amount and your assets have gone down that’s a double whammy and that could happen but then then you have the people that say well Dan I’ll just get a 5%
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CD well how long can you run that for even a fixed annuity maybe you can go 10 years on that but most people wouldn’t want to do that either most banks right now at my dad’s bank the deal right now is for if you want a 5% uh CD it’s seven months so that’s not going to help you right um so yeah they’re not going to the you can’t Bank on those rates but then again you can get some Treasures you can get some fixed rates that are decent but that’s still not it’s
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still the problem still is you are still going to be drawing down that asset no matter way you which way you cut it in our scenario again we’re single we have 300,000 so if you need to delay to 70 and you need to take out 150 half of your money’s just gone assuming you put it under the pillow and even if you get 5% it’s still going to be a big chunk of your money gone spent and that is really difficult for people to understand but here or not understand they get that and to grasp and the emotion of watching their
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account go down they’re like why didn’t I take Social Security I wouldn’t have to take this much out right oh because it gives me breathing room now and then I don’t have to take his much and then but here’s my point and it’s different for everyone it depends on what return you get it depends on how much you have but for someone with 300,000 what you could see is yeah your account’s going to go down by everything you take out for those first five years
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it’ll go up a little by whatever interest you get but once you hit 70 and you turn that Soul Security on the amount you have to take from that Ira is going to drop dramatically and so whatever’s left say it’s 150 you are going to be in a position where you don’t have to take much of that at all and the interest that you gain on that will potentially allow you to not even see that go down ever again and maybe just continue to grow for the rest of your life so in the end in l long term it’ll be higher than if you
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took social security early and had to draw down from your IRA in a consistent basis because you’re always playing catchup there’s an inflection point and it works out for a lot of people and the longer you live the more that inflection grows of course but during to get there is a rocky road it’s like you know um I’m trying to think of an example of it’s like a um sandbagging in a sport like you know you’re going to get the points but you’re letting the other team just get tired and work
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and work and you just holding back and you’re holding back boxing that’s it again you had to bring Mike Tyson up again you know I think Ali didn’t Ali do that I mean one of the big boxers he was famous for he’d uh just let them run around and then he would come in with the huge punch and just but in the meantime they’re just pounding away on you little Jabs and you’re taking it you’re taking it letting them get Rocky the movie Rocky yeah just boom
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boom Rocky and he’s just taking it all the while that’s not fun no one likes that no one likes to see their account go down but you know eventually you’re going to flip the switch and that’s when you come and then things get better again that’s the hardest part of this whole thing and then you’ll have people that say well I can invest it myself and so on this is when I say cola this is the second point you want you’re G to get a cola on Social Security and it’s you know average a little more than
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three% lately it’s been high because inflation’s been high sure but you don’t necessarily get a cola on your IRA withdrawals right so you’re sitting there if so if you just made a great Point against what you’re trying to point out if you’re saying let the Social Security grow you’re you could be getting that Cola and you’re not so you have to fact you mentioned that briefly at the beginning you have to factor in the fact that you’re not getting those colas to use you are though you are and
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I had did a show on that and you were there but you obviously didn’t pay attention if you delay Social Security you still get the delayed retirement credits plus you get the colas that everyone else is getting so you are going to get that but you’re gonna have to delay that again but you’re waiting but my point is you’re not getting them right each year or regularly you’re not getting them yearly they are adding up so that’s good you’ll get the higher amount eventually right but it’s going
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to be on a higher number though so what I’m saying is that colas are compounding so I’d rather you know if you take it at 65 and you get 27,000 you’ll get a Col on that but if you take it and get 40,000 later you get a cola on that and it just compounds yeah 3% on the amount you’ve let it rolled up to is going to be much greater than the 3% you’d be getting right you’re a year on the lower because you’re locking in a lower base amount the base amount you lock in so if
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I take it early I’m locking in a lower base amount so I’m always going to get a cola the percentage on that lower monthly uh Social Security amount but if I let it roll up I’m going to get col is eventually on that higher amount on that extra Delta the 16 to 20,000 in this scenario you’re going to get a cola on that and yeah maybe that’s not a lot but it adds up it adds up in compounds right so yes you can invest the money that you get but again in this scenario we’re saying we’re spending it so you can’t
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get that Cola on the you’re spending in the IRA um but if you left it in the IRA you can invest it and yeah so it balances a little bit so you do get compounding interest if you would leave it in the IRA but yeah uh assuming though that the long more you go for that higher Cola or compounding interest in your IRA the more risk you’re taking and so there’s always that chance it goes down um whereas the cola doesn’t go down on Social Security it might be zero but it won’t it won’t be negative right
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okay but here’s the big one that people you know the big one that people forget is taxes and uh that I can talk all day on that but this is the other one death benefit you know I and I mentioned it already oh I take Social Security because if I die my kids won’t get it right if you’re pulling out you’re saying pull money out of your IRA and let your Social Security roll up but if I do that that’s less money to leave my kids because the money in the IRA I want to have money left over in my
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retirement investment accounts to leave to my children right and I I’m not going to argue with that other than to say that in the long run you could see and most likely will if you live past an inflection point where your account value is higher because you delayed Social Security because again as you get older you have to and you delay that’s less of a strain or on your IRA later yeah and the comp you’re taking a risk but that might H there’s a there is a good chance happen there’s a window if
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you die in that five years well if that was the case then we should have taken social security early as possible to begin with but we have to assume that we’re going to live the average life expectancy or higher now here’s another little tidbit on this that um I never really mentioned and I don’t have any empirical evidence of this but if you are planning to live a long life and you live this way and say I’m delaying Social Security because I’m going to you know live into my 80s then that’s going
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to help you mentally and physically potentially actually do that right you know like if you have this goal and you want to beat the system then maybe that’s a little extra drive to get you to actually beat the system now sure you have the right attitude about it if you think I’m just not I’m gonna take it because it’s going to go away it’s G to disappear and I’m gonna die who knows I might be dead at 70 yeah that there’s a lot of that talk the talking heads on TV are telling Social Security is not going
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to be there for us you know right and so everyone’s going to get a haircut but wouldn’t you rather get a 15% decrease on a higher number than a lower number yeah I mean Dan when you hear it said with this gravitas here’s another truth Social Security is [Music] dying that scares me that scares me again Social Security is dying but the stock market or your investment account could get crushed again so there’s similar risk but it two different things for sure now here’s the
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big one Tony this is the one that people just don’t realize and this is the big one that when you start doing especially the number crunches are like well break even and I’m going to take it now because I could do so much better with it or whatever it is there’s always taxes that you have to figure in as my mom used to say she used to work for the IRS when I whenever we saw the lotto oh today I can win a million dollars my mom would always say that’s before taxes right yeah my mom said that too she was
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an accountant and she always said that that’s before taxes Mom I just won 10 grand that’s before taxes how about a congratulations right so taxes on Social Security are always going to be more favorable than an IRA withdrawal if it’s a traditional IRA we’re talking about in this scenario not a Roth so the reason being is because there’s a minimum of a 15% tax-free social security benefit it’s pegged to a number that was made in 1980 so if you make above I say for 32,000
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or 34,000 for a single person then up to 85% of your benefits are taxed but 85 is the cap so that means 15% of your Social Security benefits in any scenario are going to be tax-free okay that’s pretty good so if I took 10,000 out of my IRA all of it’s taxed if I take 10,000 of social security income maybe 8,500 is taxed Maybe none of it that’s the other thing you could be in a scenario especially if your only income source is social security which in this example maybe that would work you hit 70 you turn off
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your IRA withdrawals until you have to at 75 say RMDs during that period where your only income is social security it may be to tax-free completely depending on how you know it’s C you know what your total are yeah I think that is a good point and people uh Social Security does have tax benefits a lot of people don’t realize it’s even taxed though and you know uh but it’s not fully taxed at least not yet and uh but I do want to point out if you live in certain States uh the states have can
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tax Social Security as well and my home state of Minnesota is a bad one for that there’s a bill there’s a bill that’s being passed I think to actually lower how much they tax the Social Security but and during the summer of 2024 Donald Trump said maybe we should eliminate taxes on Social Security if that was to happen then all of a sudden it’s like wow maybe delaying Social Security makes sense because yeah for sure I won’t pay tax on that on that higher number with the cost of living
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yeah all of a sudden tax it’s much more dramatic people will say whoa wait a sec I can get 27,000 a year now or I can get 40 7,000 a year later and that’s tax-free and but my IRA is always going to be tax right you know that’s not and those rates might actually go up so but in the scenario you’re presenting it’s a lower that’s a lower income situation the SI situation you presented at the beginning it’s not like you’d be in a tax bracket where you’d have to pay much or anything
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on Social Security anyway very good point so if you’re if you’re maxing out at probably 12% so you’re saving a 12% tax on 15% of your Social Security so it’s not a huge number but when you’re talking super wealthy and to take the RMDs you know RMDs could play a factor in this but that’s only if you had much more a lot more money right and that good point because that brings up the people that say well I’ll just take Social Security and then I don’t have to touch my uh IRA well
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you might want to not take Social Security and touch your IRA well I don’t need that income do WTH conversions during that time but if you take Social Security and then try and do a Roth conversion your income’s higher so you’re going to be paying so you can convert less so there’s another reason to delay Social Security is to allow for more wiggle room too many ins and outs and possibilities that’s why Dan like I know you’re going to go to your conclusion my conclusion is don’t do
00:24:12
anything without working with somebody like yourself to sit down because everybody’s situation is different and you can look at all the scenarios and figure out which one’s going to work best right yes and again for some people it makes sense to take it early some people it makes sense to delay and especially for a single person there’s it really is going to depend on what your social security income is what your expenses are and then how much you have an IRA like we just use this
00:24:41
one example and I was making the point that it does make sense to delay for this particular scenario it’s not clean cut and dyed obvious you have to run some numbers and see how it works but it may make sense in many situations the key is you do have to do a personal analysis you have to run your numbers and don’t be you know a lot of people go online and they want to hear something they want the advisor to say delay it they want the adviser to say take it early and then when I say you should
00:25:13
delay it there’s always going to be people that say no way I’m taking it early you know nothing blah blah blah then there’s people that I say take it early they’ll say no you should delay that I’m not telling you which to do I’m telling you though that those that take it early tend to forget about some of the things I talked about today and the number one thing they forget about is the tax advantage on Social Security and how that should be a factor in when you claim that’s it Tony again I don’t work
00:25:43
for Social Security and I’m not giving investment advice but if you want some guidance on it you can call me I’ll put the number and the website up but it’s dolphin Financial group.com Tony thanks for a great show yeah catch everybody soon maybe next week we’ll keep it we’ll keep it going keep the show going I think we’re on year six Tony six years of doing the show Weekly right yes and I don’t even know your middle name have a good week everyone we’ll get Tony’s middle name
00:26:17
next week all matters discussed in today’s show for informational purposes only this show is not investment advice Dan Wendol nor Dolphin Financial Group are affiliated or endorsed by any government agency. Investment advisory services are offered through Dolphin Wealth Management Inc a registered investment advisor in the State of Florida Insurance products and services are offered through Dolphin Insurance Inc dolphin Wealth Management Inc and dolphin Insurance Inc are affiliated companies doing businesses as Dolphin
00:26:47
Financial Group you should talk to someone at Dolphin Financial Group before implementing any of these strategies or ideas
00:00:01
should you delay your Social Security and then raid your IRA in order to live we’ve done shows on this in the past but I’m going to get a little bit more specific because a lot of the commentary and phone calls I get from that show is leading me to believe that we need to get a little bit more specific with the scenario and I’m going to bring on my co-host Tony short Tony you know we’ve done this show before and the concept is delay social security for as long as you can and
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in the meantime you take from your retirement savings to live right and it’s a controversial topic because there’s a lot of emotions involved in this and I think there’s a lot of misinformation in this so what I want to do today is talk specifically about some of the points that people were making when they watched that show so let me get more specific on the scenario now right but we you had a lot of questions too from that show Dan and we’re address I mean that that show it’s been a while but
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that show raised a lot of people are like yeah but what about this what about that right what abouts exactly we’re gonna cover we’re gonna attack those today right and you know that the main reason huge reason to delay social security for a lot of people is to protect their spouse so if you have a spouse and you’re thinking about claiming Social Security at 62 or early or you think your spouse is planning to do so watch the show I’ll put it up here on benefits for a spouse or exp spouse or
00:01:33
Survivor because those are a big factor but in this scenario today we’re going to talk about you’re not you’re eliminating the spouse I’m no wait no let me let me rephrase that I’m not telling you to eliminate your spouse we got to be careful nowadays I’m telling you we’re eliminating the spouse from the equation because that’s a huge Factor on delaying but let’s say you’re single and or that your spouse isn’t an issue because they have high social
00:02:00
security or a similar or a similar benefit maybe you have equal earnings or you know whatever so let’s eliminate the spousal discussion because that’ll clean this up a little bit let’s also eliminate the discussion of Dan if I get past 75 it’ll be a miracle you know so let’s eliminate the low life expectancy uh scenarios okay because it’s really not a good case to delay Social Security to 70 if you’re only going to live to 72 right so let’s eliminate the life expectancy let’s
00:02:31
assume that you’re single and you’re going to live average or longer life expectancy which is what is that you know that’s probably right now uh for an 65y old you’re probably going to average age 82 for a male and 85 is 84 for a female or something along those lines and then let’s also eliminate the people that say I don’t even need the money so I’m just going to take it and invest it no we’re going to talk about someone that they need this income to live all right so let’s get even more
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specific and say you’re 65 you have 300,000 in retirement savings nothing else you have your you know your expenses are $3,500 to live now someone’s like 3500 that’s not you know that’s what 50,000 bucks that’s not a lot uh 45,000 that’s not a lot well I’m just it may not be your scenario but I’m trying to get it down to a point where we’re focused on uh a very specific type of person here right and this is very common this is very common for people you might have more or less
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than 300,000 um but all right so this is the scenario they’re 65 years old now I by doing 65 instead of 62 I’ve eliminated the whole Affordable Care Act subsidies that’s a whole different question I’ll put a show up there in case you’re like well how am I going to pay for health insurance and I don’t have Medicare income matters when you take Social Security matters so if you take Social Security at 62 and you go on a healthcare subsidy you can’t hide that income you can’t control it so but we
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eliminate that discussion that’s a different topic all right so I’m really ning it down Tony all right so you’re 65 years old and you’re done working now you need that 3500 a month to live and you have two options you turn on Social Security and you start claiming that to help with the 3500 a month or you pull from your IRA or a combination of both that’s it that’s those are your options Rich Uncle Tony’s not going to be sending you money so let’s imagine that your social
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security benefit is $2500 at your full retirement age so it’s clearly not enough to to only have social security so you’re going to have to pull from your IRA at some point right so let’s get specific let’s say at age 65 your Social Security is $27,000 a year okay that’s not enough to live but it helps but if you wait till 70 and let’s be dramatic and wait five years that’s going to be 47,700 so it’s an extra $20,000 a year now when you when you’re at say 71 the
00:05:22
difference is only 16,000 and let me explain why that is so well if I take 27,000 a year now and I can get 47 at 70 that’s a and this is this is like real numbers these are like based on um the cost of living increases but also the um delayed retirement credit you get the 8% growth right so it’s saying oh I get 20,000 a year more at 70 no it’s not going to be that much more because your Social Security that you take at 65 will continue to grow it’s not going to stay at 27,000 it’ll grow as well oh that’s
00:05:58
true because of the cost of Liv living adjustment the C that’s right that’s right so the real you know good estimate difference is about $166,000 a year difference later on but that’s going to continue to grow that difference is going to grow because the cost of living on a higher number is going to just widen the Gap but fundamentally what you’re doing is like okay I still need to take out I’m still foregoing $27,000 plus Cola a year for five years that’s like $150,000 that I’m not gonna get from
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Social Security just so that I could turn on later and get a higher number right so why would I do that if I’m only going to get an extra 16,000 that’s you know eight nine years it’s going to take me just to get back to where I was right to the break even point right and break even point is definitely I I don’t like using it it’s you know it’s too simplified there’s a lot more that go into it that that I want to talk about sure but if you’re single Break Even Point does matter more than if
00:07:07
you’re married so here are the key Concepts that I want to go through um there’s three or four um you got investment capacity and tolerance so I’ll tackle that one first and then we’re going to talk about the cost of living and then the death benefit and then finally taxes because you can’t get away without talking about taxes so here’s the first point and stick this is this is my main driver for a lot of people to delay Social Security and raid their Ira because it’s not easy but
00:07:42
I think the math shows uh it’s valuable consideration and here’s why having a larger Baseline income at 70 or 68 or when you delay having a larger Baseline income from Social Security gives your Investments your other retirement savings some more breathing room I’m in it so you if you still need $45,000 to live and if you take it at 65 you’re getting 25,000 you’re short 20 every year whereas if you wait till 70 and you turn it on and you get 40,000 from Social Security now you’re only
00:08:17
short about 5,000 you know when you start adding so when you finally do turn on Social Security you got a lot more breathing room because you don’t have to continually tap as much from your IRA yeah but in the mean time Dan if you’re suggesting to take from your IRA and let Social Security grow as some people have done you’re going to watch you’re going to have to go through the emotional turmoil of watching that account deplete when you first retire and watching that amount go down and down and down and a
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lot of people watch that balance and they panic I mean I know that as a fact I mean from family that I have that are retired uh they’re very I don’t have enough money and I’m like you have a lot of money you don’t even need to worry I mean they’re in their I have people in their 80s that I know 87 years old I know someone and uh they have you know maybe just under a million dollars in their you know IRAs and they’re panicked and they’ll Panic if it goes down at all because it’s went
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down if it goes down at all the government’s making me take money out with RMDs I hate it I so wouldn’t it be worth it wouldn’t it be worth it to just take Social Security so you take less from the IRA well that’s the whole point right and my thought is well I don’t know everyone’s situation different but you’re right you bring up the biggest problem which is people have a difficult time spending down their IRA and we’ve done shows on how it’s difficult for people to spend their
00:09:45
money in general let alone have that Ira so if you need 40,000 to live and you have no social security because you’re delaying it and you take 40,000 a year out for five years right now all of a sudden we’re like where did that 200,000 go well you spent it to live and just to see your account go down by that it you’re right it’s a painful that’s why I put on there you must be willing to accept that initial drop or you’re taking it out right away H you’re taking it out and letting your Social
00:10:15
Security grow for those first two years and then you watch the you’re taking all this money out uh and the market then after a year of doing that hits record highs you’re like I would have had that much more in there of course right hindsight Monday Morning Quarterback it’s like oh I should have just I should have just fed cut the interest rates and the markets hit a record high and but I didn’t have very much I didn’t have nearly as much in there because I’ve been using it to live on right and
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so this is the key it’s if you don’t need the money yeah that’s an easy thing to say but you need that money you need to live right so you’re GNA be spending it from somewhere but you’re right there’s still the what if the reverse happens what if the market goes down even worse and now you’ve taken social security locked in that lower amount and your assets have gone down that’s a double whammy and that could happen but then then you have the people that say well Dan I’ll just get a 5%
00:11:09
CD well how long can you run that for even a fixed annuity maybe you can go 10 years on that but most people wouldn’t want to do that either most banks right now at my dad’s bank the deal right now is for if you want a 5% uh CD it’s seven months so that’s not going to help you right um so yeah they’re not going to the you can’t Bank on those rates but then again you can get some Treasures you can get some fixed rates that are decent but that’s still not it’s
00:11:45
still the problem still is you are still going to be drawing down that asset no matter way you which way you cut it in our scenario again we’re single we have 300,000 so if you need to delay to 70 and you need to take out 150 half of your money’s just gone assuming you put it under the pillow and even if you get 5% it’s still going to be a big chunk of your money gone spent and that is really difficult for people to understand but here or not understand they get that and to grasp and the emotion of watching their
00:12:21
account go down they’re like why didn’t I take Social Security I wouldn’t have to take this much out right oh because it gives me breathing room now and then I don’t have to take his much and then but here’s my point and it’s different for everyone it depends on what return you get it depends on how much you have but for someone with 300,000 what you could see is yeah your account’s going to go down by everything you take out for those first five years
00:12:43
it’ll go up a little by whatever interest you get but once you hit 70 and you turn that Soul Security on the amount you have to take from that Ira is going to drop dramatically and so whatever’s left say it’s 150 you are going to be in a position where you don’t have to take much of that at all and the interest that you gain on that will potentially allow you to not even see that go down ever again and maybe just continue to grow for the rest of your life so in the end in l long term it’ll be higher than if you
00:13:19
took social security early and had to draw down from your IRA in a consistent basis because you’re always playing catchup there’s an inflection point and it works out for a lot of people and the longer you live the more that inflection grows of course but during to get there is a rocky road it’s like you know um I’m trying to think of an example of it’s like a um sandbagging in a sport like you know you’re going to get the points but you’re letting the other team just get tired and work
00:13:55
and work and you just holding back and you’re holding back boxing that’s it again you had to bring Mike Tyson up again you know I think Ali didn’t Ali do that I mean one of the big boxers he was famous for he’d uh just let them run around and then he would come in with the huge punch and just but in the meantime they’re just pounding away on you little Jabs and you’re taking it you’re taking it letting them get Rocky the movie Rocky yeah just boom
00:14:23
boom Rocky and he’s just taking it all the while that’s not fun no one likes that no one likes to see their account go down but you know eventually you’re going to flip the switch and that’s when you come and then things get better again that’s the hardest part of this whole thing and then you’ll have people that say well I can invest it myself and so on this is when I say cola this is the second point you want you’re G to get a cola on Social Security and it’s you know average a little more than
00:14:54
three% lately it’s been high because inflation’s been high sure but you don’t necessarily get a cola on your IRA withdrawals right so you’re sitting there if so if you just made a great Point against what you’re trying to point out if you’re saying let the Social Security grow you’re you could be getting that Cola and you’re not so you have to fact you mentioned that briefly at the beginning you have to factor in the fact that you’re not getting those colas to use you are though you are and
00:15:25
I had did a show on that and you were there but you obviously didn’t pay attention if you delay Social Security you still get the delayed retirement credits plus you get the colas that everyone else is getting so you are going to get that but you’re gonna have to delay that again but you’re waiting but my point is you’re not getting them right each year or regularly you’re not getting them yearly they are adding up so that’s good you’ll get the higher amount eventually right but it’s going
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to be on a higher number though so what I’m saying is that colas are compounding so I’d rather you know if you take it at 65 and you get 27,000 you’ll get a Col on that but if you take it and get 40,000 later you get a cola on that and it just compounds yeah 3% on the amount you’ve let it rolled up to is going to be much greater than the 3% you’d be getting right you’re a year on the lower because you’re locking in a lower base amount the base amount you lock in so if
00:16:25
I take it early I’m locking in a lower base amount so I’m always going to get a cola the percentage on that lower monthly uh Social Security amount but if I let it roll up I’m going to get col is eventually on that higher amount on that extra Delta the 16 to 20,000 in this scenario you’re going to get a cola on that and yeah maybe that’s not a lot but it adds up it adds up in compounds right so yes you can invest the money that you get but again in this scenario we’re saying we’re spending it so you can’t
00:16:57
get that Cola on the you’re spending in the IRA um but if you left it in the IRA you can invest it and yeah so it balances a little bit so you do get compounding interest if you would leave it in the IRA but yeah uh assuming though that the long more you go for that higher Cola or compounding interest in your IRA the more risk you’re taking and so there’s always that chance it goes down um whereas the cola doesn’t go down on Social Security it might be zero but it won’t it won’t be negative right
00:17:29
okay but here’s the big one that people you know the big one that people forget is taxes and uh that I can talk all day on that but this is the other one death benefit you know I and I mentioned it already oh I take Social Security because if I die my kids won’t get it right if you’re pulling out you’re saying pull money out of your IRA and let your Social Security roll up but if I do that that’s less money to leave my kids because the money in the IRA I want to have money left over in my
00:18:00
retirement investment accounts to leave to my children right and I I’m not going to argue with that other than to say that in the long run you could see and most likely will if you live past an inflection point where your account value is higher because you delayed Social Security because again as you get older you have to and you delay that’s less of a strain or on your IRA later yeah and the comp you’re taking a risk but that might H there’s a there is a good chance happen there’s a window if
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you die in that five years well if that was the case then we should have taken social security early as possible to begin with but we have to assume that we’re going to live the average life expectancy or higher now here’s another little tidbit on this that um I never really mentioned and I don’t have any empirical evidence of this but if you are planning to live a long life and you live this way and say I’m delaying Social Security because I’m going to you know live into my 80s then that’s going
00:19:02
to help you mentally and physically potentially actually do that right you know like if you have this goal and you want to beat the system then maybe that’s a little extra drive to get you to actually beat the system now sure you have the right attitude about it if you think I’m just not I’m gonna take it because it’s going to go away it’s G to disappear and I’m gonna die who knows I might be dead at 70 yeah that there’s a lot of that talk the talking heads on TV are telling Social Security is not going
00:19:29
to be there for us you know right and so everyone’s going to get a haircut but wouldn’t you rather get a 15% decrease on a higher number than a lower number yeah I mean Dan when you hear it said with this gravitas here’s another truth Social Security is [Music] dying that scares me that scares me again Social Security is dying but the stock market or your investment account could get crushed again so there’s similar risk but it two different things for sure now here’s the
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big one Tony this is the one that people just don’t realize and this is the big one that when you start doing especially the number crunches are like well break even and I’m going to take it now because I could do so much better with it or whatever it is there’s always taxes that you have to figure in as my mom used to say she used to work for the IRS when I whenever we saw the lotto oh today I can win a million dollars my mom would always say that’s before taxes right yeah my mom said that too she was
00:20:30
an accountant and she always said that that’s before taxes Mom I just won 10 grand that’s before taxes how about a congratulations right so taxes on Social Security are always going to be more favorable than an IRA withdrawal if it’s a traditional IRA we’re talking about in this scenario not a Roth so the reason being is because there’s a minimum of a 15% tax-free social security benefit it’s pegged to a number that was made in 1980 so if you make above I say for 32,000
00:21:01
or 34,000 for a single person then up to 85% of your benefits are taxed but 85 is the cap so that means 15% of your Social Security benefits in any scenario are going to be tax-free okay that’s pretty good so if I took 10,000 out of my IRA all of it’s taxed if I take 10,000 of social security income maybe 8,500 is taxed Maybe none of it that’s the other thing you could be in a scenario especially if your only income source is social security which in this example maybe that would work you hit 70 you turn off
00:21:39
your IRA withdrawals until you have to at 75 say RMDs during that period where your only income is social security it may be to tax-free completely depending on how you know it’s C you know what your total are yeah I think that is a good point and people uh Social Security does have tax benefits a lot of people don’t realize it’s even taxed though and you know uh but it’s not fully taxed at least not yet and uh but I do want to point out if you live in certain States uh the states have can
00:22:12
tax Social Security as well and my home state of Minnesota is a bad one for that there’s a bill there’s a bill that’s being passed I think to actually lower how much they tax the Social Security but and during the summer of 2024 Donald Trump said maybe we should eliminate taxes on Social Security if that was to happen then all of a sudden it’s like wow maybe delaying Social Security makes sense because yeah for sure I won’t pay tax on that on that higher number with the cost of living
00:22:42
yeah all of a sudden tax it’s much more dramatic people will say whoa wait a sec I can get 27,000 a year now or I can get 40 7,000 a year later and that’s tax-free and but my IRA is always going to be tax right you know that’s not and those rates might actually go up so but in the scenario you’re presenting it’s a lower that’s a lower income situation the SI situation you presented at the beginning it’s not like you’d be in a tax bracket where you’d have to pay much or anything
00:23:14
on Social Security anyway very good point so if you’re if you’re maxing out at probably 12% so you’re saving a 12% tax on 15% of your Social Security so it’s not a huge number but when you’re talking super wealthy and to take the RMDs you know RMDs could play a factor in this but that’s only if you had much more a lot more money right and that good point because that brings up the people that say well I’ll just take Social Security and then I don’t have to touch my uh IRA well
00:23:46
you might want to not take Social Security and touch your IRA well I don’t need that income do WTH conversions during that time but if you take Social Security and then try and do a Roth conversion your income’s higher so you’re going to be paying so you can convert less so there’s another reason to delay Social Security is to allow for more wiggle room too many ins and outs and possibilities that’s why Dan like I know you’re going to go to your conclusion my conclusion is don’t do
00:24:12
anything without working with somebody like yourself to sit down because everybody’s situation is different and you can look at all the scenarios and figure out which one’s going to work best right yes and again for some people it makes sense to take it early some people it makes sense to delay and especially for a single person there’s it really is going to depend on what your social security income is what your expenses are and then how much you have an IRA like we just use this
00:24:41
one example and I was making the point that it does make sense to delay for this particular scenario it’s not clean cut and dyed obvious you have to run some numbers and see how it works but it may make sense in many situations the key is you do have to do a personal analysis you have to run your numbers and don’t be you know a lot of people go online and they want to hear something they want the advisor to say delay it they want the adviser to say take it early and then when I say you should
00:25:13
delay it there’s always going to be people that say no way I’m taking it early you know nothing blah blah blah then there’s people that I say take it early they’ll say no you should delay that I’m not telling you which to do I’m telling you though that those that take it early tend to forget about some of the things I talked about today and the number one thing they forget about is the tax advantage on Social Security and how that should be a factor in when you claim that’s it Tony again I don’t work
00:25:43
for Social Security and I’m not giving investment advice but if you want some guidance on it you can call me I’ll put the number and the website up but it’s dolphin Financial group.com Tony thanks for a great show yeah catch everybody soon maybe next week we’ll keep it we’ll keep it going keep the show going I think we’re on year six Tony six years of doing the show Weekly right yes and I don’t even know your middle name have a good week everyone we’ll get Tony’s middle name
00:26:17
next week all matters discussed in today’s show for informational purposes only this show is not investment advice Dan Wendol nor Dolphin Financial Group are affiliated or endorsed by any government agency. Investment advisory services are offered through Dolphin Wealth Management Inc a registered investment advisor in the State of Florida Insurance products and services are offered through Dolphin Insurance Inc dolphin Wealth Management Inc and dolphin Insurance Inc are affiliated companies doing businesses as Dolphin
00:26:47
Financial Group you should talk to someone at Dolphin Financial Group before implementing any of these strategies or ideas