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Optimizing Social Security

By Advisor Matthew McDaniel

Social Security is a surprisingly challenging topic for many nearing retirement. The key question on most people’s minds is when to elect Social Security. To help frame the discussion, here are the three key questions that guide our conversations with clients.

  1. Do you need the cash flow for your retirement plan to work? If you need an income stream, that’s the primary concern. If you have enough support from other assets, questions 2 and 3 are of more importance.
  2. What does longevity look like in your family? At its best, Social Security acts like an insurance product protecting against the risk of longevity. Mathematically, those who expect to live past 82 should consider delaying for a higher long-term benefit.
  3. How does it affect your tax planning? If you can, delaying Social Security gives you more time in a lower tax bracket for valuable Roth transactions. Electing Social Security early can shorten this important window to convert tax-deferred assets to tax-free vehicles.

Like many financial decisions, Social Security is a decision best made in the context of a complete financial plan. If you have questions about when to begin taking Social Security, we would welcome the opportunity to help. We’ll run a professional analysis, showing you how taking your benefits at different ages affects your long-term financial plan.

Grandparent Loophole: The 529 education savings plan got a couple of significant upgrades in 2024:

  • Congress allows up to $35,000 in leftover savings from the plan to roll over tax-free into Roth individual retirement accounts.
  • Grandparents can now use a 529 plan to fund a grandchild’s education without affecting the student’s financial aid eligibility. (Previously, withdrawals could have reduced aid eligibility by up to 50% of the distribution amount.)
    The second point is called the “grandparent loophole,” and any nonparent, including friends and relatives, can use it. Beginning with the new 2024-25 FASFA, a student’s total income is only based on federal income tax returns data. This means that any cash support won’t negatively affect financial aid eligibility.

We would be happy to discuss several other benefits of the 529 education savings plans as you consider the best option for your family. Our provider, My529, continues to receive the highest rankings in the country. We can help you figure out how this fits into your financial plan.

Risks vs. Consequences: One month ago, Jontay Porter was in the headlines. He was a forward for the Toronto Raptors, an NBA team. He was given a lifetime ban for egregiously violating sports gambling rules. The NBA said he was banned for “disclosing confidential information to sports bettors, limiting his own participation in one or more games for betting purposes, and betting on NBA games.” The “reward” for his efforts: a mere $80,000. Compared to the $5.8 million 5-year contract he signed, the benefit of his betting efforts was peanuts.

The immediate questions that come to mind are: Where was his financial team?  Who would risk millions of dollars in salary for thousands of dollars? Who was helping him understand the risks?

The sports betting industry is booming. It has professional and financial implications for our kids and grandkids, as we risk money on betting instead of intentionally saving and investing for the long term. What can we learn from Porter’s choices?

Here is what sports betting looks like in America:

Consider how a well-rounded financial team (advisor, tax accountant, etc.) can help strengthen our weaknesses when it comes to our financial future and day-to-day financial decisions. We’d love to enter the conversation with you.

For the Grads: We love to read and want to share a book that you might be interested in gifting to the college or high school grads in your life: Adulting 101. Many of the soft skills discussed in this book can easily be overlooked but, as we know, prove vital as we mature into adults.