Personal Finance

Many retirees don’t delay Social Security benefits. Experts say it pays to wait

Published

9 months ago

April 19, 2024

Business Finance News

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The largest and final cohort of the baby boom generation — 30.4 million Americans — will turn 65 by 2030.

And more than half of that group will primarily rely on Social Security for income, according to new research from the Alliance for Lifetime Income.

Deciding when to claim Social Security retirement benefits is a high stakes decision. Generally, the longer you wait, the larger your monthly checks will be.

Eligibility for retirement benefits starts at age 62. But full retirement age – generally age 66 or 67, depending on an individual’s birth year — is when retirees may receive 100% of the benefits they’ve earned.

For each year you wait past full retirement age up to 70, you may receive an 8% benefit boost.

“Everyone should know that you have a penalty if you collect before 70,” said Teresa Ghilarducci, a professor at The New School for Social Research and author of the book “Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy.”

Yet a majority of new retirees tend to claim benefits before age 65, according to the Alliance for Lifetime Income’s new research, though waiting another five to eight years would result in higher lifetime benefits.

How to know your full retirement age

To gauge when to claim, you first should know your full retirement age — the point when you’re eligible for 100% of the benefits you’ve earned.

Today, a new higher full retirement age of 67 is getting gradually phased in.

“For most of the people retiring today, their full retirement age is somewhere between 66 and 67,” said Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claiming software company.

If you were born between 1943 and 1954, your full retirement age is 66. The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. If you were born in 1960 or later, your full retirement age is 67.

Social Security full retirement age

Year of birth	Social Security full retirement age
1943-1954	66
1955	66 and two months
1956	66 and four months
1957	66 and six months
1958	66 and eight months
1959	66 and 10 months
1960 and later	67

Source: Social Security Administration

Why it pays to delay retirement benefits

Claiming at age 62 comes with significant penalties, experts say.

For people who are turning 65 this year, early claiming would result in a 30% benefit cut. Instead of $1,000 per month at their full retirement age, 66 and 10 months, they would receive around $700 per month had they claimed at age 62.

Most people know that early claiming will result in reduced benefits, a Schroders survey from last year found. However, many respondents still planned to start their monthly checks early.

Using the word “early” to describe claiming at 62 may lead people to feel there is an advantage to claiming then, Shai Akabas, executive director of the economic policy program at the Bipartisan Policy Center, noted during an Alliance for Lifetime Income’s presentation.

BlackRock CEO Larry Fink: Younger generations don't know who to listen to about retirement

Instead, that may be called the “minimum benefit age” to help people understand there are benefit reductions for claiming then, he said.

A bipartisan group of senators has called for making that change, as well as changing “full retirement age” to “standard benefit age.” Age 70, the highest claiming age, would be called the “maximum benefit age.”

When deciding the right time to claim Social Security, retirees should consider not only the size of their monthly benefits, but also their lifetime benefits, longevity protection and immediate needs, according to the Bipartisan Policy Center.

It also helps to consider how a claiming decision will affect a spouse or dependents who may also receive benefits based on a worker’s record.

Research has found only about 8% of beneficiaries delay until age 70, the highest possible age to claim benefits, according to Ghilarducci. Because Social Security benefits are one of the few sources of guaranteed income for many retirees, having smaller monthly checks can make them more financially vulnerable.

Those who can’t delay their Social Security benefits for years can still increase their lifetime benefit income by delaying for just a few months, according to Ghilarducci.

“Do whatever you can to bridge to a higher Social Security benefit amount,” Ghilarducci said.

Personal Finance

Now is an ‘ideal time’ to reassess your retirement savings, expert says

Published

7 hours ago

January 22, 2025

Business Finance News

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When it comes to retirement savings, surveys often point to a big magic number you will need to have set aside to live well.

Yet retirement experts say to focus on another number — your personal savings rate — to make sure you achieve your retirement savings goals.

“Early in the year is an ideal time to reassess your retirement contributions and overall savings strategy because you can take advantage of any employer matches, adjust your monthly budget accordingly and stay ahead of potential market shifts,” said Douglas Boneparth, a certified financial planner and president and founder of Bone Fide Wealth, a wealth management firm based in New York City.

What’s more, increasing your retirement savings now gives your money more time to compound — earning interest on both your contributions and previously earned interest. That can “significantly impact your nest egg over the long term,” said Boneparth, who is also a member of the CNBC FA Council.

Boost your 401(k) deferral rate

If you have a 401(k) plan through your employer, now is a great time to look at your contribution rate, according to Mike Shamrell, vice president of thought leadership at Fidelity.

Most importantly, see how your savings rate corresponds to what your employer offers in terms of a company match, he said.

“It’s the closest thing a lot of people get to free money,” Shamrell said.

Oftentimes, companies have a match formula. If you’re not clear on how much you need to contribute to get the full match, contact your human resources department or 401(k) provider, Shamrell said.

Fidelity recommends saving at least 15% of your pre-tax income annually, including your contributions and money from your employer.

If you’re not quite there — or you want to save even more — even just a 1% increase in your deferral rate can make a big difference to your retirement savings over time, Shamrell said.

“It may not have the significant impact on your take-home pay that you that you may be envisioning,” Shamrell said.

Fund your IRA for 2025 — and 2024

Retirement savers also have a window of opportunity to fund individual retirement accounts for both this year and last year.

To count for 2024, contributions can be made up to April 15. (You must designate the deposit for tax year 2024.) For that year, individuals can contribute $7,000, or $8,000 if they are age 50 and over.

The same contribution limits apply for 2025, though savers have additional time — up to April 15, 2026 — to make those contributions.

Savers may be able to deduct those IRA contributions, depending on their income.

Revisit your investment allocations

In 2024, the average 401(k) balance grew about 11%, thanks to soaring stock markets, according to Shamrell.

Heading into the rest of 2025, now is a great time to revisit your personal asset allocations.

“Make sure your allocation didn’t drift too far into equities and that you don’t have more exposure to equities than you might realize,” Shamrell said.

If you’re worried about picking the wrong investment, you can instead opt for target date, asset allocation or balanced funds, which help decide how your funds are allotted for you, according to Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

Also be sure to consider to your risk capacity — the amount of risk you can afford — as well as risk tolerance — the amount of risk you’re willing to take, said Cheng, who is also a member of the CNBC FA Council.

Identifying those personal limits ahead of time can help you stay the course during market turbulence, she said. Investors who bail during the market’s worst days may miss the best days, which often closely follow, research finds.

If you’ve had any major recent life events — gotten married, bought a house or had a baby, for example — you may also want to check that your allocations still correspond to your long-term plans, Shamrell said.

Personal Finance

There’s a big inherited IRA change in 2025. How to avoid a penalty

Published

8 hours ago

January 22, 2025

Business Finance News

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Inheriting an individual retirement account is a windfall for many investors.

However, a lesser-known change for 2025 could trigger a costly surprise penalty, financial experts say.

Starting in 2025, certain heirs with inherited IRAs must take yearly required withdrawals while emptying accounts over 10 years, known as the “10-year rule.”

“The big change [for 2025] is the IRS is enforcing penalties for missed required distributions,” said certified financial planner Judson Meinhart, director of financial planning at Modera Wealth Management in Winston-Salem, North Carolina.

There’s a 25% penalty for missing a required minimum distribution, or RMD, from an inherited IRA. But it’s possible to reduce the fee if your RMD is “timely corrected” within two years, according to the IRS.

Here are the key things to know about the inherited IRA change.

Which heirs could face a penalty

Before the Secure Act of 2019, heirs could withdraw funds from inherited IRAs over their lifetime, which helped reduce yearly income taxes.

Since 2020, certain inherited accounts have been subject to the “10-year rule,” meaning heirs must deplete inherited IRAs by the 10th year after the original account owner’s death.

After years of waived penalties for missed RMDs from inherited IRAs, the IRS in July finalized guidance. Starting in 2025, certain beneficiaries must take yearly withdrawals during the 10-year window or they’ll face a penalty for missed RMDs.

The rule applies to heirs who are not a spouse, minor child, disabled, chronically ill or certain trusts — and the yearly withdrawals apply if the original IRA owner had reached their RMD age before death.

One group who could be impacted are adult children who inherited IRAs from their parents, according to CFP Edward Jastrem, chief planning officer at Heritage Financial Services in Westwood, Massachusetts.

But the rules have become a “spiderweb mess of decision-making,” he said.

Avoid the ’10-year tax squeeze’

For 2025, there’s a enforced penalty for missed RMDs. But heirs also need to manage withdrawals to avoid the “10-year tax squeeze,” said Jastrem.

Over the past few years, some heirs have skipped yearly withdrawals from inherited IRAs, which could mean larger required withdrawals before the 10-year window closes, he said.

For example, boosting adjusted gross income can impact things like Medicare Part B and Part D premiums, eligibility for the premium tax credit for Marketplace health insurance and more.

Of course, timing inherited IRA withdrawals depends on your complete tax situation, including multi-year projections of your adjusted gross income, Meinhart said.

Personal Finance

‘Era of the billionaire.’ Here’s why wealth accumulation is accelerating

Published

9 hours ago

January 22, 2025

Business Finance News

President-elect Trump's cabinet to have more billionaires than any in history

The rich are getting richer.

The combined wealth of the world’s most wealthy rose to $15 trillion from $13 trillion in just 12 months, according to Oxfam’s latest annual inequality report — notching the second largest annual increase in billionaire wealth since the global charity began tracking this data.

Last year alone, roughly 204 new billionaires were minted, bringing the total number of billionaires to 2,769, up from 2,565 in 2023, the global charity found.

“Not only has the rate of billionaire wealth accumulation accelerated — by three times — but so too has their power,” Oxfam International’s Executive Director Amitabh Behar said in a statement Sunday.

“We’ve reached a new era now, we are in the era of the billionaire,” said Jenny Ricks, general secretary of the human rights group Fight Inequality Alliance. “The challenge now is turning this around and making this the era of the 99%.”

Despite the fact that America ranks first as the richest nation in the world in terms of gross domestic product, 36.8 million Americans live in poverty, accounting for 11.1% of the total population, according to the latest report from the U.S. Census Bureau.

“We need government serving people’s real needs and rights,” Ricks said, with increased funding for education and healthcare, among other social services.

‘Tax us, the super rich’

After Oxfam’s report was released, some of the world’s wealthiest people called on elected representatives of the world’s leading economies to introduce higher taxes on the very richest in society.

In an open letter to political leaders attending the annual World Economic Forum in Davos, Switzerland, more than 370 billionaires and millionaires said that they wanted to “tackle the corrosive impact of extreme wealth.”

To that end, “start with the simplest solution: tax us, the super rich,” the letter said.

36% of billionaire wealth is inherited

Oxfam found that 36% of billionaire wealth is now inherited. Much of that wealth will also get handed down. A separate report by UBS found that baby boomer billionaires’ heirs stand to inherit an estimated $6.3 trillion over the next 15 years.

“As the great wealth transition gains momentum … we expect the proportion of multigenerational billionaires to increase,” the report said.

According to Oxfam’s analysis, half of the world’s billionaires live in countries with no inheritance tax for direct descendants.

In the U.S., there is a federal estate tax up to 40%, depending on the amount of the estate over the current exclusion limit.

In 2025, the basic exclusion amount rose to $13.99 million per person, up from $13.61 million in 2024.

Meanwhile, President Donald Trump has vowed to fully extend the trillions in tax breaks he enacted via the Tax Cuts and Jobs Act in 2017, which also doubled the estate and gift tax exemption.

After 2025, the higher estate and gift tax exemption will sunset without action from Congress. If the provision expires, the exclusion will revert to 2017 levels, adjusted for inflation.

Some Democrats have pushed back on TCJA extensions, noting that they disproportionately benefit the wealthy, rather than middle-class families.

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