Members of Generation X, ages 45 to 60, are the next in line to retire after boomers (and some already have). However, this scrappy, often-overlooked generation came of age before the internet and tends to put their heads down and focus on the work at hand, forgetting to ask key questions about their retirements.
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Experts offered Gen Xers advice on Social Security questions they may have forgotten to ask, but need to know, and soon.
Plan For Social Security Adjustments
Gen Xers tend to ask if Social Security will still exist, but that’s not quite the right question, according to Dr. Preston Cherry, CFP and founder at Concurrent Wealth Management. What they should be asking is, “How might the system adjust, and how do I build a plan that bends with it?” he explained.
Most Gen Xers don’t realize that “even if no changes happen by the time the trust fund reserves are projected to hit depletion around 2034, Social Security wouldn’t vanish,” Cherry said. “It would likely pay about 80% of the promised benefits.”
Instead of freezing in fear, he urged Gen Xers to “start flexing their plans now.” This means assuming a possible cut while keeping an eye on potential tax tweaks or benefit formula adjustments Congress could make. “It’s about staying nimble, not paralyzed.”
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The Taxable Implications of Social Security Income
Gen Xers are also often surprised that up to 85% of their Social Security benefits can be taxable if they cross certain income thresholds, Cherry said.
For couples, once combined income — which includes adjusted gross income (AGI), tax-free interest and half their benefits — goes over $32,000 but no higher than $44,000, half of it becomes taxable. At more than $44,000, they can be taxed on up to 85% of their benefits, he explained.
“What catches people off guard is how investment income from brokerage accounts can push them into these brackets fast.”
Cherry said that “smart withdrawal sequencing,” like pulling from Roth or taxable accounts first, can help control taxes.
Don’t Wait Until Your 60s To Think About It
Way too many Gen Xers wait until their early 60s to think about Social Security, Cherry warned. “I tell them, don’t do that to yourself. Start running the scenarios in your early 50s, when you still have time to adjust your savings, tax strategies and lifestyle.”
They also often forget how the Social Security timeline links to Medicare, he said. “You still need to enroll in Medicare at 65 to avoid penalties, even if you hold off on claiming Social Security until later.”
Coordinate With a Spouse
Another thing Gen Xers miss is coordinating benefits with a spouse, Cherry said. One person in the couple may want to grab benefits at 62 and the other at 70, but they haven’t talked through how that impacts survivor benefits or taxes down the line. “Social Security claiming isn’t a one-and-done decision,” he said.
Understand How Spousal Benefits Apply
On the topic of spouses, Chad Gammon, a CFP and the owner of Custom Fit Financial, said, “I think most people do not realize that an ex-spouse might be eligible for benefits.”
If you were married for 10 or more years, you do not remarry before you start collecting Social Security benefits, you’re 62 or older and your ex-spouse is eligible for Social Security, you may be eligible to claim spousal Social Security benefits.
You Should Check Your Earnings Record
Most Gen Xers also do not know how to check their earnings records, Cherry said. “They remember they used to get a paper copy statement and wonder why they don’t get those anymore.” Now, you can just go online to check at www.ssa.gov/myaccount/.
Focus On Other Retirement Options
Gen Xers should not rely solely on Social Security, but focus on strategies before Social Security starts, such as Roth conversions and how that can help reduce future required minimum distributions later in retirement, Gammon said.
“Starting Social Security early and then trying to do a Roth conversion can be problematic,” he said. For one thing, Roth conversions count as income, so converting large amounts from a traditional IRA to a Roth IRA could trigger that 85% tax on your Social Security benefits mentioned earlier. But it can also affect the price of your Medicare premiums, even if you aren’t taking that benefit yet, depending upon which Part you’re paying for (part B or D).
Calculate Your Monthly Income Projection
Though no one can predict how long they’ll live, to move beyond fear of outliving your savings, Yehuda Tropper, CEO of Beca Life Settlements, recommended calculating “approximately what your Social Security monthly income will be, what your bare-minimum expenses will be and what the gap is.”
The gap is what you need to worry about in the event of a market crash that affects your retirement accounts. “Once you know this, you can plan for having appropriate cash reserves and a tolerable level of risk in your portfolio,” Tropper said.
For example, a Gen Xer might project a $3,000 monthly Social Security benefit at their full retirement age of 67. If their bare-minimum monthly expenses are $4,000, the $1,000 gap represents the income they’d need from savings during a downturn to maintain their essential needs without selling investments at a loss.
“By having sufficient cash reserves to cover, say, 12 to 36 months of this $1,000 gap ($12,000 to $36,000), they could ride out a significant market dip without jeopardizing their long-term portfolio.”
Most importantly, create a plan, ideally with a financial advisor, so that you’re not caught off guard by any surprises when it’s time to retire.
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Sources
- Dr. Preston Cherry, Concurrent Wealth Management
- Chad Gammon, Custom Fit Financial
- Yehuda Tropper, Beca Life Settlements
This article originally appeared on GOBankingRates.com: What Gen X Needs To Know About Social Security but Forgets To Ask
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
