William Meyer of Social Security Solutions said that for advisors who focus on finding the optimal Social Security benefits claiming strategy for clients, the next challenge is to coordinate such benefits with a client’s retirement income withdrawal strategy.
While the best claiming strategy is to delay benefits until age 70, if a client decides to retire between ages 62 and 70, Meyer said, “the question becomes, ‘Where should you draw from?’”
Advisors “are trained” to take from taxable accounts first, Meyer said. When it comes to retirement income withdrawal strategies, “everyone says take your taxable first, tax-deferred and then Roth. Most big firms educate their advisors on [taking] taxable, tax-deferred and tax-exempt.”
Meyer said it’s not so clear. Instead, he said that for many people, it “depends on how much money you have and how much you spend,” adding that the “average person” should take from their tax-deferred accounts first.
Yes, by doing so, the client will pay higher taxes, but he said it makes sense because “when you start taking Social Security, you’ll have lower Social Security taxes, and you will have lower required minimum distributions because you’ve taken out” of the IRA or 401(k) first.
The sequence “of how you tap your investments definitely depends on the client’s situation, but my point is that Social Security and how you draw down [on your other retirement plan assets] are completely dependent upon each other,” Meyer added. “If you coordinate those two things well, you can find seven or more years of [benefits] longevity because you’re reducing taxes.”