In part one of this series, we discussed how a prolonged downturn in the market during the fragile decade can derail withdrawal plans. The conventional approach to managing through market declines and loss years is to take the long view, keep investing and rely on long-term averages to eventually help the portfolio recover.

This approach can work well when you are younger and have salary income and decades to ride out the storm before taking withdrawals. For those of us near or in the fragile decade, the long view may not be the optimal course of action, or worse, it could be downright devastating, as we saw in part one.

As you approach your retirement date, you should have a more accurately defined and refined list of spending needs. This is when your investment strategy can (and likely will) diverge from the accumulation stage.

Balancing risk with returns

A lot of the investing concepts we discuss for the accumulation stage (and are put forth by financial advisers) are grounded in Modern Portfolio Theory (MPT), which seeks to optimize market returns and risk by asset class. Simply stated, as you invest for the long term, get as much of a return as you can, given your level of risk tolerance.

Harry Markowitz introduced the world to MPT in 1952, and his principles have influenced generations of financial thinking. In 1990, Markowitz shared the Nobel Memorial Prize in Economic Sciences for his efforts around MPT.

Finding this optimal balance of return and risk is what Markowitz describes as investing along the efficient frontier. MPT has been successfully used for decades by institutions such as endowments, pension plans and large trust funds, etc. The traditional approach to retirement planning has taken the principles of MPT and adapted them to individual investors.

But here’s the rub: Large institutions, like endowments, have an infinite time horizon without a fragile decade. Institutions are effectively in a perpetual accumulation stage. They do not need to plan for and manage through a significant and finite withdrawal stage, but you do.

“If you want something you’ve never had, you must be willing to do something you’ve never done.” — Thomas Jefferson

Enter goals-based planning. With origins going back decades, goals-based planning gained in popularity after the 2008-2009 financial crisis. It seeks to refocus our goals away from obtaining abstract market return rates and toward meeting specific personal goals (e.g., our monthly spending needs).

Making risk more tangible

As such, we should similarly reframe our risk profile, moving away from focusing on the volatility of market prices. We should describe our risk in a much more personal way: Our principal risk is the chance that we fall short of our spending goals.

A goals-based approach to planning can help make the risk more tangible. We take measured, personally defined risks and don’t endlessly ponder esoteric risks (such as standard deviation, alpha, beta, R-squared and the Sharpe ratio). Goals-based planning is focused on optimizing a limited pool of financial assets by matching assets and income with future liabilities and expenses (i.e., future spending needs).

If, for example, you can meet all your cash flow needs with a 5% return, then why take on a greater risk of loss to try to achieve a higher return? Why risk losing what you have and need to chase what you don’t have and don’t need?

Your goals, not just your risk tolerance, should drive investing decisions. During the withdrawal stage, income and capital preservation become much more important than stretching for outsized returns.

Under the umbrella of goals-based planning, the idea of a safety-first strategy has evolved. Briefly, a goals-based safety-first strategy looks at your spending goals in two broad buckets. The first, the safe bucket, seeks to cover your basic financial needs (e.g., housing, food, health care, emergency fund, etc.) with assets invested with as little risk as possible (the safety-first component).

Safety-first investments to consider

To start, you might think of safety-first investments such as bank CDs, money market funds, short-duration government bonds and bond ladders, etc. But don’t lose sight of other financial resources you might have beyond cash and bonds that could also provide safety-first withdrawals. For example, Social Security, a pension, rental income from real estate, income annuities and insurance products. The key is to build a stream of income that will cover your basic needs regardless of a declining stock market.

Once this safety-first basket is secure, you can then put the remainder of your portfolio in the second or aggressive bucket, to cover discretionary spending (wants), which can be invested as aggressively (or conservatively) as you see fit. When your basic needs are met, you can decide how much risk you want to take to achieve your aspirational wants — those items that would be nice to have (more frequent vacations, etc.), but in a falling stock market, you could do without.

In part three of this series, we’ll offer up some specific ideas for mitigating the impact of sequence of returns risk and protecting the retirement cash flow you have diligently worked to achieve.

As always, invest often and wisely. Thank you for reading.

This content is for informational purposes only. It is not intended to be, nor should it be construed as, legal, tax, investment, financial or other advice.

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There's a lot to know about Social Security in order to get it just right, and many people don’t know the ins and outs. In fact, 44% of Gen Z respondents said they didn’t know what Social Security is or what it does at all in a recent survey by Atticus. 

So here, we take a look at what to consider before taking Social Security, so you can make a holistic, informed decision. 

1. Taking Social Security? Watch out for three birthdays

There are three important birthdays to pay attention to when thinking about taking Social Security:

• 62: This is the earliest age you can begin receiving a benefit, but only a reduced amount.
• 66-67: Your full retirement age when you become eligible for your full benefit.
• 70: The age when your benefits stop increasing if you delay claiming.

Age isn't the only factor in determining when you should take Social Security, either. Other considerations include your and your family's health, longevity, spousal benefits options and what other financial assets you have, says James Hutchens, a senior wealth adviser at Northern Trust.

"The age that you start to take Social Security, combined with your life expectancy, can lead to a difference of hundreds of thousands of dollars over your lifetime, or potentially your spouse’s lifetime," Hutchens says.

You'll also want to consider your other retirement income. If delaying Social Security will mean you need to withdraw from other assets, it may make more sense to start your benefits. This will let you keep your other assets invested.

2. What is the full retirement age?

Social Security full retirement age, or FRA, is the age at which you become eligible to receive 100% of your benefit. This age is based on the year you were born and ranges from 66 to 67. 

If you wait to claim Social Security benefits until after your FRA, you'll receive a larger monthly payment. Benefits increase by 8% for each year you delay taking Social Security after full retirement age. Once you reach age 70, your benefits stop increasing, so don't keep delaying after that.

3. Can I take Social Security benefits early?

While you can begin taking Social Security as early as age 62, your benefit will be reduced by 25% to 30% if you do. Your spouse's benefit could also be reduced. 

That said, there are still good reasons to take Social Security early despite this reduction. For example, if you're in poor health or want to retire early.

You become eligible to receive 100% of your benefit at your Social Security full retirement age. This age is based on the year you were born and ranges from 66 to 67. If you delay claiming, your Social Security benefit will increase by 8% for each year you wait until you reach age 70.

4. When should I take benefits?

Deciding when to take Social Security involves a lot of moving parts. One strategy to picking the optimal date is to use your break-even point. This is the age you must reach to make waiting to claim until full retirement age worthwhile. 

Some may not think they'll live long enough to make delaying worthwhile, in which case claiming early is the best route. But it's also important to factor your spouse into the equation if you're married.

5. What if I am married?

Married couples have more options for taking Social Security. As long as you and your spouse have been married for at least one year, you can receive a spousal benefit or your own benefit. Exceptions to the one-year rule are if you're parenting your spouse's child or are or were entitled to benefits under the Railroad Retirement Act the month before you got married.

One spouse can claim a benefit without impacting the other spouse's benefit amount. However, claiming Social Security early also reduces the spousal benefit.

If you apply for both a spousal benefit and your own, you'll receive the higher of the two. Unfortunately, you cannot file for a spousal benefit and delay your own benefit if you turned age 62 on or after January 2, 2016.

6. Can I change my mind on Social Security?

The good news is that you can change your mind after you start taking Social Security. You can stop and restart Social Security benefits. Doing so may enable you to increase your benefit as if you had delayed taking it initially.

How you go about this will depend on the length of time you've been receiving benefits. You may need to repay all of the benefits you and anyone who claimed benefits under your record received. You may also need to wait to press pause on your benefit until you reach your FRA.

You should also be aware that stopping your Social Security will mean you need to pay your Medicare Part B premiums directly. 

The bottom line

When to start taking Social Security is a question every retiree faces. The decision impacts not only your financial future, but also that of anyone who claims a benefit under your record. It's a lot of responsibility to rest on your own shoulders, which is why the best strategy may be to work with a financial professional who can help you weigh all your options.

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Social Security forms a fundamental pillar of retirement finances. You pay into Social Security during your working career. Social Security is indexed for inflation and offers some hedging against two major risks you will face in retirement: longevity risk, or the risk of outliving your money, and inflation risk, which can compromise your purchasing power over time.

If these risks are not adequately addressed in your retirement planning process, they could undermine your retirement plan and compromise your quality of life in your old age. Integrating Social Security into a broader retirement strategy alongside pensions and personal savings is essential for sustaining your desired lifestyle and financial independence throughout retirement.

When optimizing your retirement income plan, you must view the Social Security timing decision beyond merely a break-even analysis. From that perspective, most people must live to age 78 or 79 in order to justify delaying the benefits until age 70.

Alternatively, I believe Social Security may be viewed as longevity insurance. In this context, you may decide to delay benefits “'in case”' you live for a very long time. With more people eating better and exercising, and with continued advances in health care, many people will reach the age of 100 and beyond. As life expectancies increase, Social Security may be a key element in protecting you and your spouse from outliving your money.

Benefits of delaying Social Security

As per the January 2024 Social Security Administration publication, delaying Social Security retirement benefits beyond your full retirement age can significantly enhance monthly benefit amounts. The increase is calculated based on birth year and the length of deferral, with benefits growing by approximately 8% annually (or two-thirds of 1% per month) until age 70.

According to the same Social Security Administration publication, individuals born before 1955 opting to start benefits at age 70 can receive up to 132% of their monthly benefit, compared with the amount at their full retirement age. those born in 1955 or later would see a bit less of a boost — from 130.7% to 124% — but that’s nothing to sneeze at. Assuming that you live beyond your break-even age, this strategic delay can substantially enhance your lifetime retirement income, providing a robust financial safety net against longevity risk.

Moreover, delaying benefits increases the base upon which your annual cost-of-living adjustment (COLA) is applied. Essentially, each year that the Social Security Administration offers an inflation enhancement to retirees, your benefits will increase by a greater dollar amount because your payment base is higher.

An additional consideration is your spouse. When you pass away, your spouse is eligible to receive the greater of your enhanced benefits or continue with their own. By delaying benefits and having those benefits compound to a greater degree with inflation, a retiree can offer increased survivor benefits for their spouse, providing greater financial security for surviving partners.

Potential drawbacks in delaying Social Security

While waiting to claim Social Security could offer compelling advantages, it may not suit everyone's financial strategy or life circumstances. Delaying benefits may lead to the depletion of other retirement assets earmarked for inheritance. Furthermore, the tax implications of accessing retirement funds, such as those held in a 401(k), can affect overall retirement income.

Unlike Social Security payments, which are taxed more advantageously, withdrawals from retirement accounts are fully taxable at ordinary income tax rates. It's crucial to evaluate all tax-related factors when establishing an optimal retirement income plan.

Emotional and health factors to think about

Emotional comfort and health considerations also play a role in the decision to delay Social Security benefits. Some individuals prioritize immediate financial support, especially if health concerns or the desire for a stress-free retirement are important to them. Balancing emotional well-being with long-term financial security is essential when making decisions about Social Security timing.

Market volatility and uncertainties surrounding the future of the Social Security program are also crucial considerations. Liquidating investments during market downturns to compensate for

delayed benefits could negate the financial benefits of waiting. Moreover, potential changes to Social Security's structure could further complicate decision-making.

Making an informed decision

A well-informed decision on Social Security timing requires a holistic understanding of the intricate balance between current financial needs, future income security, and overall well-being. Claiming Social Security early — before your full retirement age — results in a permanent reduction in benefits, along with potential penalties if you keep working and your earnings exceed certain thresholds.

The decision also involves considering health insurance implications, particularly regarding Medicare. Individuals must apply for Medicare within three months of their 65th birthday to avoid late-enrollment penalties for Medicare Part B and Part D. This step is crucial to ensure continuous health coverage without incurring unnecessary costs. For those who apply for Social Security before age 65, enrollment in Medicare Parts A&B will be automatic once you turn 65. For those delaying benefits past that age, they must remember to apply for Medicare to avoid unnecessary penalties.

Ultimately, the decision to postpone Social Security benefits is deeply personal and requires a nuanced evaluation of health, financial landscape, taxes, other available resources, and retirement objectives. Striking the right balance between immediate needs and long-term financial security is essential for a stable and comfortable retirement. By weighing the advantages and challenges of delaying benefits, retirees can make informed choices that pave the way for a secure and fulfilling retirement.

Antwone Harris, MBA, CFP®, is Chief Planning Strategist at Platinum Bridge Wealth Strategies in Washington, D.C. His firm focuses on retirement income planning for professionals in or near retirement. Prior to launching Platinum Bridge Wealth Strategies in 2017, he spent 12 years as a VP - Senior Financial Consultant with Charles Schwab Inc. Investment advisory services offered through Osaic Advisory Services, LLC (Osaic Advisory), a registered investment advisor. Osaic Advisory is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Advisory. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Views expressed in this article ay not reflect the views of Osaic Advisory Services, LLC.

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Combining Social Security benefits and an IRA can be an effective strategy for funding your retirement. However, if you take a distribution from a traditional (not Roth) IRA, you may have to pay taxes on your Social Security benefits. This can certainly have a major impact on your retirement income.

So let’s take a deeper look at how this works.

How IRAs Impact Social Security: Taxes on Social Security benefits

Up to 85% of your Social Security benefits are subject to federal income taxes. This is based on your “combined income,” or your adjusted gross income (AGI) plus nontaxable interest and half of your annual Social Security benefits. You will include the amounts from your spouse if you file jointly.

As for the AGI, it includes wages, interest, investment income and distributions from traditional 401(k)s and IRAs. You can then make adjustments, such as for a health savings account (HSA) and other calculations that may change your AGI.

Here are the tiers of taxes due on Social Security benefits for individuals and couples filing jointly.

• If your combined income is under $25,000 (single) or $32,000 (married filing jointly), your Social Security benefits are not taxed.
• For combined income between $25,000 and $34,000 (single) or between $32,000 and $44,000 (married filing jointly), up to 50% of your benefits may be taxed.
• For combined income above $34,000 (single) or above $44,000 (married filing jointly), up to 85% of your benefits may be taxed.

Let’s consider an example. Suppose you and your spouse are retired. Your combined Social Security benefits are $35,000 and you take an IRA distribution of $35,000.  

Half of the Social Security benefits is $17,500, which you then add to the IRA distribution for a total of $52,500 in combined taxable income. Remember, however, that while this amount is above the threshold for being taxed as much as 85% of the benefits, this does not necessarily mean you will pay at this level. This is the maximum. You can use Worksheet 1 from IRS Publication 915 to calculate your taxable benefits. But this is a complex area and it is a good idea to seek the help of a tax expert or use tax software. 

However, if you had not taken an IRA distribution, then the Social Security benefits would have been tax-free.

Another issue with an IRA withdrawal is that it can push you into a higher Medicare Income-Related Monthly Adjustment Amount (IRMAA) bracket.  “This increases your Medicare premium,” said Marcus Holzberg, a certified financial planner™ at Holzberg Wealth Management.  “Since Medicare is deducted from your Social Security check, this will inadvertently reduce your Social Security benefits.”

Required minimum distributions (RMDs)

To avoid taxes on your Social Security benefits, you can defer making distributions from your IRA. This also has the benefit of allowing your money to grow.

But there is a limitation: required minimum distributions (RMDs). This is when you must make withdrawals from your traditional IRA or other pre-tax retirement accounts like a Simple IRA, SEP IRA, 401(k) and 403(b). The amount is considered income for the taxes on your Social Security benefits. 

RMDs are triggered based on your age, ranging from 72 to 75. The amount of the withdrawal is based on a calculation from the IRS, which includes the account balance and your life expectancy. If you do not make the distribution, you will be subject to paying income taxes and a 25% penalty.  

A way to deal with the impact of RMDs is by taking a qualified charitable distribution (QCD). “This allows you to use distributions from your IRA to contribute directly to qualified charities,” said Holzberg. “In doing this, the IRA distribution is not included in your income, thereby lowering your AGI.”

On the other hand, you can delay when you claim Social Security benefits. You can wait until age 70. For every year you delay receiving the benefits, your annual payment increases by about 8%.  

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As you’re planning for retirement, it’s important to understand the difference between active income and passive income. Think of active income as an exchange. It’s the money you’ve earned in exchange for your time and services. Passive income is the opposite. It’s earned from income-generating assets, such as dividends and interest income, rental income and capital gains on stock investments or real estate.

During your working years earning active income is the focus, but in retirement, earning passive income should take priority.

Earning passive income requires you to change your approach when investing. During your working years, you’re typically investing for growth. The hope is that your assets will increase in value. But as you get closer to retirement, the goal is to have your assets increase in value while also providing you with income.

Earning passive income through real estate

There are several different investments you can make that can generate income. One common method is getting involved in rental real estate. According to data from Pew Research, 72% of single-unit rental properties are owned by individuals. Investors who buy and hold rental property profit from recurring rental income and any potential gains from appreciation when the property is sold or refinanced.

If you’re not interested in administering your own real estate rentals, you can join a real estate investment trust (REIT). A REIT is a company that owns and operates real estate to produce income for stakeholders. REITs include multistory building rentals, office spaces and malls. The investments are long-term, and the goal is to generate income through holding, leasing and renting.

Other passive income possibilities

Aside from real estate, investing into savings accounts, CDs and money market accounts are other options for generating passive income. The rate of return for each varies, but these options have lower risk, which works well for people approaching or in retirement. In addition to being low risk, these investments are typically insured by the Federal Deposit Insurance Corporation (FDIC).

Three withdrawal methods to consider

Identifying multiple passive income streams is only a portion of your income planning. The next step is to create a strategic method for withdrawal. There are several withdrawal methods to choose from, but the strategy you pick should align with your risk tolerance and income needs.

One withdrawal method is the systematic withdrawal strategy. This strategy involves withdrawing a fixed amount regularly from retirement accounts, such as a set percentage of the portfolio balance annually. This method provides a steady stream of income, but it doesn’t account for market fluctuations or changes in expenses.

Another approach to consider is the bucket strategy. With this method, retirees divide their portfolios into different “buckets” based on their time horizon and risk tolerance. Short-term buckets hold cash and investments for immediate expenses, while longer-term buckets hold assets with higher potential returns.

Retirees with tax-deferred accounts, such as traditional IRAs and 401(k)s, also have the required minimum distribution strategy at their disposal. Once you reach a certain age (currently 73, but rising to 75 in 2033), the IRS requires you to take RMDs from these accounts. By using these withdrawals as a baseline, retirees can plan additional withdrawals as necessary.

A different kind of retirement income strategy

Some workers may choose to approach retirement a little differently. Instead of retiring all at once, the staged retirement strategy gives workers the option to gradually transition from full-time work to part-time or consulting roles. While this method falls into the active income category, it can help supplement retirement income while delaying the need to draw down retirement savings.

Creating a plan that provides you with financial security and stability is essential for those hoping to retire. A solid plan can give you peace of mind in the face of market volatility and uncertainty surrounding the future of Social Security. To ensure your income plan meets your needs, consider meeting with a financial adviser. They can give you more information about the various income streams and withdrawal methods that are available, helping you pick an option that works best for you.

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That said, Social Security has a maximum family benefit, the maximum amount you can collect monthly based on your earnings record.  Right now, the maximum amount is between 150% and 188% of your monthly benefit payment at full retirement age (FRA), according to AARP.

How does social security work for married people?

Retirees claiming Social Security have options. Married couples may have more options than a single person because each person in the marriage can claim benefits at different dates and may also be eligible for spousal benefits.

When you reach age 62, for every year you delay taking Social Security up to age 70, you could receive up to 8% more in future monthly payments, according to Fidelity. However, once you turn 70, the increases stop. Each spouse can claim benefits. However, the amount they receive is based on their own work record. 

Or, they can choose to claim up to 50% of their spouse's benefit at full retirement age. If one spouse earns more money than the other, claiming the spousal benefit may make sense. However, before you choose this option, find out how much your own estimated benefits will be at full retirement age. 

Can you claim both retirement and spousal benefits?

According to the Social Security Administration, you and your spouse must be married for at least one year before qualifying for spousal benefits. If you parent your spouse’s child, the one-year rule does not apply. If you are or were entitled to benefits under Social Security or the Railroad Retirement Act in the month before you got married, you are also entitled to your spouse’s benefits. However, a divorced spouse must have been married for ten years to get the spousal benefits.

What you need to know:

• You must be at least 62 years of age to claim spousal benefits, and you and your spouse have to have been married for at least one year, in most cases.
• You can’t collect spousal benefits unless your spouse already receives Social Security. If your spouse claims their own benefit, you are dually entitled. This means you apply for both retirement and spousal benefits simultaneously, and you’ll get the higher of the two amounts.
• At age 62, you can receive spousal benefits equal to 32.5% of your spouse’s full retirement age benefit amount. The amount you receive increases each month until you reach full retirement age. You can collect 50% of your partner’s benefit at that time.  
• Waiting to claim your Social Security benefits enables the benefit amount to grow. Plus, if your spouse draws spousal benefits on your record, it will not affect what you get from Social Security.

When is the best time to collect benefits?

Before claiming benefits, you must pay Social Security taxes for at least ten years. You can start receiving benefits as early as 62, and the amount you receive is based on your earnings each year. If your spouse has a lower earning record or no record at all, they can collect on your earnings record when they turn 62, and vice versa if you haven’t worked or have a lower earning record. 

There are several reasons to take Social Security early, at age 62. If you decide to retire at this age, the benefit payment may be a necessary source of income each month. Or, you may be concerned you won’t live long enough to collect your full benefits due to a serious health condition. On the other hand, the earlier you start to collect Social Security, the less you’ll receive each month. 

Planning ahead for retirement

Although many people don’t start planning for retirement until they reach their 60s, it’s always a good idea to plan ahead when you're young and to start putting money away in a savings account or 401(k). That’s because most financial planners recommend replacing about 80% of your pre-retirement income to maintain the same lifestyle after you retire.

Log into the Social Security site to apply for benefits and check eligibility. 

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Think about it — during what I call the Dynamic Decade+, the period between ages 62 and 75 — there are consequential decisions associated with retirement that should be made. That includes deciding when to stop working, choosing when to claim Social Security, starting Medicare, planning for required minimum distributions (RMDs), considering when to start withdrawing money from your retirement accounts — and more.

What’s more, these decisions are intimately connected, with one decision affecting the next like a row of dominos falling. These decisions are also closely correlated to your tax situation. Essentially, the decisions you make before and during retirement about these issues will likely set your taxes at a certain level for the rest of your retirement, barring major changes in federal tax laws.

These are not decisions that you want to make without a good deal of thought, because they can be so consequential and complex. While complexity can be annoying, it also creates opportunity. If you’re like many pre-retirees or retirees, you may have little idea about how complicated these matters are until you start investigating them.

In this article, you’ll gain an appreciation for the opportunity that retirement creates to control your financial destiny and tax situation through the decisions I’m going to walk you through — some that are irrevocable. These are all decisions that you’ll need to make between ages 62 and 75.

The Dynamic Decade+

Briefly, here are some of the major milestones you’ll hit in the Dynamic Decade+ and their financial implications:

Quitting employment. At some point, you — and your spouse if you have one — will stop working. The average retirement age in the U.S. is 62. When you stop working, you’ll need to either begin Social Security, draw on your retirement savings or both, unless you have an alternative method to generate income.

Enrolling in Medicare. Initial Medicare enrollment begins three months before you turn 65 and ends three months after the month in which you turn 65. Medicare Part B costs $174.70 each month in 2024 — costs will increase if your income reaches certain levels. From there, you can select a Medicare Advantage plan or a Medicare supplemental plan, each with their own specific premiums, copays and deductibles. Medicare Part D, which is prescription drug coverage, also has costs, which can also vary based on income. You can change Medicare Advantage, supplemental and Part D providers once a year during open enrollment, which occurs yearly October 15 through December 7.

Claiming Social Security. The earliest age to claim Social Security is 62, and the latest is 70. If you claim at 62 in 2024, your benefit will be about 30% less than if you waited to claim until your full retirement age of 67. In contrast, if you delay claiming past full retirement age, you will receive 8% in additional income for each year you wait. Up to 85% of your Social Security may be taxable if your individual income is above $34,000 a year. If your income is between $25,000 and $34,000, up to 50% may be taxable.

Receiving a defined benefit pension. When you stop working, you will need to decide when and how to take your defined benefit pension, if you have one. Most entities offering a defined benefit pension will allow you to take it either as a lump sum that you can roll over into an IRA, or you can receive monthly income instead. If you are married, you will have to decide whether to take a joint or single payout; the joint payout is less, but the single payout would mean your pension dies when you do. Defined benefit pensions are taxable at your household marginal tax rate.

Taking retirement distributions. The SECURE 2.0 Act further delayed the point at which you must take distributions from your traditional retirement accounts. If you turn 73 after Jan. 1, 2023, you will be required to take RMDs at age 73. However, if you turn 75 after Jan. 1, 2033, you must take RMDs by age 75. Traditional retirement benefits are taxable at your individual marginal tax rate.

Deciding how to invest retirement savings. At some point during this journey, you must decide how to invest your retirement savings to meet your retirement-specific needs. You can, of course, continue to invest the same way you did when you were working. However, considering that you need to replace the income that you no longer have from working, it’s worthwhile to consider a different approach. Many individuals find their risk tolerance is reduced in retirement, which is another consideration.

Determine distribution strategies

Embedded in all of these decisions is the challenge of creating a sustainable income that will cover your expenses for the rest of your retirement, regardless of how long that lasts. You must take into account your projected expenses and income, which will flow from all of the decisions you’ll make between ages 62 and 75. If you’re like many people, you’ll want to make sure that you can maintain your standard of living throughout retirement.

You’ve also spent decades saving for this moment in time — the moment you retire. You likely have assets in a variety of different accounts. Additionally, they may be subject to different types of taxation. You and your spouse may have traditional IRAs, taxable brokerage accounts and a Roth IRA. You’ll draw monthly income from Social Security, but odds are that Social Security won’t be enough to pay all your bills and give you the standard of living that you want to maintain in retirement.

How taxes fit in

In the absence of an intentional plan, taxes can take a big bite out of your distribution strategy. As I mentioned above, Social Security is taxed for most people, as are defined benefit pensions and distributions from traditional IRAs. You must take those distributions when you turn 73 or 75, regardless of whether you need that money on or not. While delaying RMDs from 70½ to 72, 73 and ultimately 75 can seem like a gift, there’s also a downside. That’s because RMDs are calculated based on life expectancy, and when you are older, your life expectancy is shorter, which means higher RMDs. Higher RMDs mean more taxes.

Then there is the expense side. If your taxable income increases past a certain level, your Medicare Part B premiums can increase. For example, if you and your spouse have modified adjusted gross income greater than $206,000 and less than or equal to $258,000, your premiums would rise by $69.90 a month per person. That’s not unimaginable for many affluent individuals preparing to retire. If you have a joint Social Security benefit of $6,500 a month, bond income of $3,000 a month from a taxable brokerage account and a $2.5 million IRA with distributions of about $100,000 a year, you could easily hit that level. 

But what if, instead, you engaged in intentional tax minimization planning so that you converted at least some of your traditional IRA to a Roth IRA before you turned 75 so that your RMDs were significantly reduced? This might involve retiring but waiting to claim Social Security so that you can have reduced income one year and convert funds from your traditional IRA at a lower tax rate. This is possible if you have money saved in a taxable brokerage account or cash in the bank that you could live on without tapping other sources of income.

This is just one potential strategy you could avail yourself through learning enough about the tax laws and potential distribution strategies or by partnering with a knowledgeable and tax-savvy retirement income financial planner.

However you do it, don’t wait. Many of the decisions you’ll make during the Dynamic Decade+ are irrevocable and time-sensitive. Before you get to the point of making a mistake that might create tax headaches for you later in retirement, investigate your options so that you can, to the greatest possible extent, optimize your retirement for taxes and sustainable income.

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Here are four tips for making the transition from full-time work to retirement:

1. Understand spending changes.

In retirement, your spending typically has the largest impact on how much money you are able to save. This is why it’s important to plan ahead and create a retirement spending strategy in advance. If you work with a financial adviser, they can help you think through your potential options as you’re going through this important transition and build a strategy that is custom-tailored to your unique needs. You should also consider working with a tax professional to help you understand your different accounts and strategically plan for your various account withdrawals.

Contrary to what most people might expect, spending tends to increase in the initial months of retirement. With your entire day free, you may find yourself spending more money during the day than you did when you were working. Don’t panic: Once you adjust to your new routine, your spending may settle down.

2. Thoughtfully time your Social Security benefits.

There are a lot of questions around when to start taking Social Security benefits. The optimal timing will depend on the person and their specific situation.

Sixty-two is the earliest permissible age to start taking Social Security benefits. Keep in mind that your benefits are reduced if you begin taking them before you reach your full retirement age, which is between 66 and 67 depending on your year of birth. If your benefits are reduced, this reduction is permanent and will impact your benefits for the rest of your lifetime. If you delay taking your benefits, you can receive an 8% annual credit for every year that you delay through age 70. So if your full retirement age is 67, and you delay taking Social Security benefits until 68, you would receive 108% of your basic benefit. If you delay until you’re 69, it would be 116%, and so on.

When deciding whether to delay your benefits, you should consider your longevity and the impact on spousal benefits if you are married. For some people, it can make sense to file for benefits before reaching their full retirement age if their benefit as a spouse is higher than their own benefit. For others, it might make sense to delay if they are able to.

It’s important to understand your options and the resulting consequences. For example, filing for Social Security benefits can also trigger your qualification for other benefits, such as Medicare. If you apply for benefits before you are 65, you will automatically be enrolled in Medicare once you turn 65 — even if you have other insurance and may not want Medicare coverage.

3. Assess the costs of Medicare and long-term care.

If you aren’t covered by private insurance, you should understand what is covered by Medicare, how Part D (drug coverage) works and how Part D interacts with Social Security. And if you don’t already have long-term care insurance, look into coverage options and pay close attention to the terms and costs of any policy you consider. You should also speak with a professional about the relative costs and benefits between Medicare Advantage or Original Medicare with Medigap (supplemental insurance).

4. Review your portfolio.

The months leading up to retirement can be a good time to review your portfolio allocation, especially if you expect to live off of your portfolio’s earnings. If you’re close to reaching the age to start taking required minimum distributions (RMDs) from your retirement accounts, you should think about whether you want to implement a different allocation for your taxable accounts and tax-deferred assets.

Some factors to consider:

• When you plan to start taking distributions from your retirement assets and how long you plan to take them
• If you anticipate your marginal tax rate will be higher or lower further into retirement
• Whether you can use qualified charitable distributions (QCDs) to fulfill your required distributions
• If you have enough income and assets to fund your expenses before drawing from your tax-deferred accounts

Entering retirement is a significant life milestone, and it can come with its adjustments. Planning ahead, and keeping these key considerations in mind, can help make the transition easier.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC.

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An important part of planning is knowing what benefits you’ll have once you clock out from work for good.

The Social Security benefits of marriage

You’re probably aware that marriage brings certain financial benefits. For some, this could mean tax breaks or better access to health insurance, but it could also lead to bigger Social Security benefits. To qualify for Social Security benefits you must be at least 62 and have worked long enough to earn 40 credits, but there’s an exemption for married couples. The Social Security Administration provides benefits to both spouses, regardless of who brought home a paycheck.

This means a stay-at-home parent is eligible for benefits, even if they’ve never entered the workforce, but some other requirements must be met.

Some Social Security qualification basics

Generally speaking, you must be married for at least a year to qualify for spousal benefits. You must also be at least 62 years old, unless you’re caring for a biological child under 16, or a child who is already receiving Social Security disability benefits. However, your spouse must file for Social Security before you can receive spousal benefits regardless of age.

As for the actual payment, a married person can collect benefits based on their earnings or receive a maximum of 50% of their spouse’s Social Security benefits. The government will calculate both scenarios, basing your payment on whichever amount is greater.

Situations where your spousal benefit may be reduced

Now there are some caveats to spousal benefits. If you file to start taking your benefits before your full retirement age, your spousal benefit will be reduced. However, it’s important to note that simply claiming spousal benefits will not impact your spouse’s checks. Another caveat to this system applies to certain workers. If you receive a pension from a government job and you’re not required to pay into Social Security while working there, your benefits and your spouse’s benefits will be reduced by two-thirds of the amount of your pension.

Whether you’re planning a wedding or are a newlywed couple, it’s important to explore all the options you have at your disposal when planning for life in retirement. Social Security is a great benefit to have. But to live comfortably, you must start saving for your retirement as soon as possible. Consider talking with your spouse about opening an IRA or high-yield savings account. Also, check out employer-sponsored retirement accounts.

Taking the time to kickstart your retirement plan now will save you a lot of stress in the future.

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Social Security is an area where I see some of the most flagrantly bad advice peddled. Often, this results in people claiming benefits much earlier than they should. That said, claiming at 62 isn’t always a bad move. Below are four, non-watercooler reasons to consider claiming as soon as you’re eligible. 

1. Your health isn’t great.

You may have heard people speak about “Social Security break-evens.”  In English, that means that if you decide to delay benefits from 62 to 67, that’s five years when you weren’t collecting benefits. The break-even is the age at which you get back those missed payments in terms of cumulative benefits, because of the higher amount you received by waiting.

These ages are often 78 to 82. So, if you think you’ll live until your late 80s, that’s a good reason to delay. However, if there is a health reason to think you won’t, the opposite is also true. Most financial planning software will have you enter a life expectancy and then will make a Social Security recommendation. You can build out your plan using the free version of our software.

2. You’re a lower earner.

Since Social Security rules changed in 2016, our claiming strategies have also changed. One of the more common strategies we recommend for couples now is: “Higher earner delays, lower earner gets a raise.”  This means that the lower earner would turn on their benefit at 62, or at retirement, and the higher earner would delay until 70. If the higher earner predeceases the lower earner, the lower earner will step up to the higher benefit.

3. You need income.

This one is somewhat self-explanatory. If you have not saved for retirement and will be completely dependent on Social Security, you must claim once you retire.

While this is not a situation our firm is often faced with, it is, unfortunately, common in our country. Our advice would likely be to work as long as you can to try to max out your Social Security benefit and then to move to a low-cost area.

4. You’re a surviving spouse.

This is the trickiest of the bunch and the one we see most often. I mentioned earlier that Social Security rules changed in 2016. This had to do with how you can claim off of spouses’ and ex-spouses’ records. For widows and widowers, the rules still allow you to switch between benefits.

Imagine Joan’s husband died when she was 62. She has not collected her benefits yet. She can elect for survivor benefits now and delay claiming her own benefit until she’s 70, assuming it’s higher than the survivor benefits.

The cost of collecting at the wrong time is high, with benefits almost 70% higher at 70 than they are at 62. Of course, you don’t know when you’ll die, but it’s worth taking a guess, considering your whole situation, and making a decision. The person in the office next door to yours doesn’t have the necessary inputs to help you decide.

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