Should I begin collecting Social Security while still working to maximize my contributions to my 401(k) and Roth IRA accounts?
I will be turning 68 years old this January. I am currently employed and putting about $20,000 per year into my 401(k). This is the maximum that my current situation will allow. I plan on working to the age of 70. I am considering collecting my Social Security when I turn 68 (estimated $3100 per month) and using it to max out my 401(k) contributions ($24,500), put the maximum deposit into my Roth IRA, and the remainder into a savings account. Would this be a sensible option?
I love the idea of doing whatever it takes to save more in the last couple of years of retirement! However, if you wait until age 70 to take Social Security, you get an 8% bump per year that you wait in the benefit. That larger benefit lasts a lifetime.
Could you make more in your Roth and 401(k)? Maybe, but 8% safely guaranteed is hard to beat. If I were you, I'd wait until you stop work and let the lifetime benefit from Social Security grow.
Hope that helps!
I suggest that you work with a fee-only financial advisor to help you work the numbers on this strategy to best determine if it is of any real advantage. Some issues that I see: your current tax bracket versus your tax bracket post-retirement, your return on investment in the 410(k) and Roth IRA and what you anticipate that to be going forward, your future dependence upon the retirement accounts and rates of withdrawals. Also remember that, technically, contributions to retirement accounts need to be earned income, so as you save more from your earnings, you would need to use some of the Social Security funds to meet expenses. Depending upon your total income, you may cause the Social Security benefits to be taxable income during these two years. Additionally, if you defer claiming Social Security benefits for two additional years, your benefit will increase 8% per year.This may actually be more than you can earn on the funds were you to take benefits at age 68. The fact that you are considering putting at least some of the SS benefit into a savings account will seriously reduce any investment benefit with its minimal interest.
You can see that there are a number of things to consider in this decision. Also, verify that you are within the income limits to qualify for a Roth IRA contribution. I'm thinking that, with a Social Security benefit of $3,100 per month, you may be a high wage earner and exceed the income limits for a Roth which are different for Single and Married Filing Joint tax filers. I wish you the best.