Essential Step for Retirees Before 2026 Social Security Claims

If you are preparing for retirement, there is a crucial action you should take prior to applying for your Social Security benefits. Consulting with a financial advisor is that vital step. Even if this is your initial encounter with such a professional, there is no need for concern. Numerous advisors operate on a fee-only structure, which means you pay solely for the specific time and expertise they provide without any long-term commitment required.

Addressing Concerns About Portfolio Size

You might hesitate, thinking your savings are insufficient to justify an advisor’s attention. Dismiss that notion entirely. The size of your nest egg upon entering retirement is irrelevant. What truly matters is crafting a plan that ensures your resources endure throughout your retirement years, regardless of the starting amount.

To locate a suitable professional, consider exploring the website of the National Association of Personal Financial Advisors, known as NAPFA. Prioritize working with a fiduciary advisor. These individuals are legally obligated to prioritize your best interests in all recommendations they offer. This setup guarantees that their advice is tailored to benefit you, not to serve their own financial gain.

Why Consulting an Advisor Before Claiming Social Security Is Critical

Engaging a financial advisor prior to initiating your Social Security claim provides invaluable clarity and peace of mind. These experts bring objectivity to your financial picture, analyzing your complete asset portfolio and retirement timeline. They can objectively assess whether the moment you have chosen to start receiving benefits aligns optimally with your overall financial health.

For instance, they might identify if claiming benefits prematurely results in forfeiting substantial additional payments that could accumulate over time. Alternatively, they could reveal that your planning has been so thorough that you might have been eligible to retire earlier than anticipated, freeing up more quality years for enjoyment.

Picture a mature couple seated comfortably at their kitchen table, reviewing important paperwork with smiles on their faces. This scene captures the confidence that comes from informed planning. Image source: Getty Images.

Determining the Optimal Timing for Your Claim

Acting as an unbiased third party, the advisor evaluates your entire financial landscape. This comprehensive review helps pinpoint if your planned claiming age maximizes your lifetime benefits. They consider factors like delayed retirement credits, which increase payments for each year you postpone claiming beyond your full retirement age.

Moreover, if you intend to claim before becoming eligible for Medicare at age 65, your advisor can connect you with tax professionals or insurance specialists. These experts can guide you toward affordable health coverage options during the potential gap period, ensuring you are not caught off guard by medical expenses.

Projections on benefit duration form another key aspect of their analysis. They model various scenarios to estimate how long your Social Security payments, combined with other savings, will sustain your lifestyle. This forward-looking approach identifies any potential shortfalls early, allowing adjustments before they become problematic.

Understanding the Tax Implications of Social Security

A common shock for new retirees is discovering that Social Security benefits may be taxable. Up to 85% of your benefits can become subject to federal income tax, depending on your total income level. A skilled advisor breaks down exactly how much of your benefits might be taxed, factoring in income from pensions, retirement account distributions, part-time work, or investments.

They calculate your combined income using the formula that includes adjusted gross income, nontaxable interest, and half of your Social Security benefits. This precise computation reveals whether you fall into the 0%, 50%, or 85% taxable portion thresholds, helping you anticipate your tax liability accurately.

Developing Tax-Minimizing Withdrawal Strategies

Once all income streams are tallied—including Social Security, retirement account withdrawals, and any supplemental earnings—the total can be surprisingly robust. However, without careful management, this income might propel you into a higher tax bracket, eroding more of your hard-earned money than necessary.

Your financial advisor excels at devising withdrawal strategies that optimize your cash flow. For example, they might recommend drawing from taxable accounts first to allow tax-deferred accounts like traditional IRAs to grow longer. Or, they could suggest Roth conversions in low-income years to reduce future required minimum distributions and associated taxes.

These tailored plans ensure you access the funds needed monthly for living expenses while keeping your overall tax burden as low as possible. By sequencing withdrawals thoughtfully, you maintain control over your tax bracket placement year after year.

Crafting a Sustainable Retirement Budget

Retirement marks the beginning of a new, exciting chapter rather than an endpoint. You likely harbor aspirations such as traveling to distant locales, pursuing long-deferred hobbies, supporting family members, or indulging in creature comforts. Achieving these goals requires more than wishful thinking; it demands a practical, enforceable budget.

A proficient financial advisor collaborates with you to construct this budget from the ground up. They account for fixed expenses like housing and utilities, variable costs such as groceries and entertainment, and irregular outlays for healthcare or home maintenance. By aligning your spending with projected income, they create a framework that supports your dreams without risking financial strain.

Regular reviews ensure the budget evolves with changing circumstances, such as inflation adjustments or shifts in health needs. This dynamic approach fosters discipline while accommodating life’s unpredictabilities.

As you approach retirement, celebrate this milestone! Yet, before submitting your Social Security application, invest in a consultation with a financial advisor. This proactive measure aligns every element of your retirement plan, securing tranquility for the years ahead. Knowing you have meticulously addressed all potential scenarios allows you to embrace this phase with full confidence.

In summary, the guidance of a fiduciary financial advisor empowers you to navigate the complexities of Social Security claiming, tax planning, healthcare transitions, and budgeting. Their expertise transforms potential pitfalls into opportunities for optimization, ensuring your retirement income works as diligently for you as you did for it.