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When to Take Your Social Security?

Ah yes, an age old question and one of the most divisive topics in this industry! Advisors have created rhetoric and logic to convince clients to “wait” or to “take it as soon as possible.” But honestly, each client's situation is different and there should not be a “one size fits all” solution to taking social security.

When to take Social Security - One Size Does Not Fit All

Here’s a radical thought…what if the idea behind social security was to take it early, when you don’t need the income, and use it to pay the taxes on converting an IRA to a ROTH IRA? Confused? Stick with us. If you’ve been following us for a while, you know how we feel about the importance of tax free income.

Remember: if you are nearing retirement, you might have a sizable IRA or 401k that is waiting for you to access in retirement, BUT it’s still 100% taxable.

We know that tax rates are historically low right now, so what if you convert a portion of your IRA to a ROTH IRA? Now, if you understand the art of conversion (it’s not complicated by the way) it just means you need to pay your taxes now; and most people don’t have a huge chunk of money sitting off to the side waiting to pay those taxes. Their strategy is to pay them little by little, over the course of their retirement, when they were required to by the government, through a Required Minimum Distribution or, RMD’s.

Would you be surprised to learn that if you took the value of your IRA and converted it over 5 years, instead of over the remainder of your lifetime (the RMD strategy) that you would pay about ¼ of the taxes? Let that sink in for a second… Now, if that seems like the numbers don’t add up let us prove it to you - click the link below to set a time on our calendar to discuss further!

Rid yourself of unnecessary tax payment

Let’s say you do take our word for it, and you do want to pay the taxes over 5 years. Great! But where does the money for the taxes come from? Here is where we let the government pay your taxes for you. Sounds pretty dreamy, doesn’t it? This is where we start your social security early, and then use that amount, to convert a portion of your IRA to a ROTH IRA. Maybe it will take 4 years, maybe it will take 8…. But if the government is paying your taxes, do you even care?

You might think, "hey, if I start social security early, I miss out on the 8% increase each that the right move?" And to that, we have 2 counters:


While it is 8% you do still get a bump each year based on inflation, and last year's cost of living increase was 8.7%, so you actually missed out by waiting.


Who cares if you miss out on the 8%, you have now converted your IRA to a ROTH, which means that money and any future growth is 100% tax free! And based on the math, you paid ¼ of the total tax. So what you saved in taxes more than makes up for what you missed out on in your 8% bump.

It’s important to note that this social security strategy works best if you are retired or over the Full Retirement Age (FRA), otherwise you have to give back a portion of what you are still earning.

Our goal is always to help you maximize your wealth and retirement - book a time on our calendar to review how we can discuss your social security withdrawal strategy!

Compass Financial Team


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