Social Security and a 401(k): In a bear market, which do you withdraw first?

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Fears of recession are now mounting as major indices move closer to bear market territory, after months of market volatility that have strained the retirement portfolios of retirees and early retirees.

Those old enough to claim Social Security may be thinking of claiming earlier than expected to give them a source of income and give their wallet a chance to recoup some losses.

Retirement Week Tip: Suspend Your Options Before You Start Claiming Social Security: There’s no one-size-fits-all approach.

There is no right answer to when to claim Social Security. A person receives 100% of the benefits due to him at full retirement age, which depends on when he was born. Retirees can start claiming from the age of 62, but at any time before FRA translates into a reduced benefit. People can also receive more than they are owed for each month they delay up to the age of 70. Benefits are based on a formula that takes into account age and earnings history.

Do you have any questions about your own retirement issues? See the MarketWatch column “Help me retire”

There is also no right time to start withdrawing from a retirement account or how much a person should withdraw from those accounts each month. The 4% rule, which suggests that people take 4% of their portfolio balance each year to withdraw their money during retirement, has been widely challenged in recent years. Some experts say the withdrawal rate should be close to 3% in an effort to make retirees’ money last a lifetime.

Market volatility and rising inflation have been a concern for Americans of all ages, but for retirees, it can be especially stressful as they tend to live on fixed budgets after abandoning the power of work. Taking too much of an investment portfolio can trigger the risk sequence of returns, which is when a portfolio has fewer assets to grow when markets recover. On the other hand, starting Social Security too soon means a permanent reduction in benefits for the rest of your life.

Retirees can choose to take their 401 (k) plans instead of Social Security, said Larry Kotklikoff, an economist and founder of Economic Security Planning, which has a Social Security analysis software called MaxiFi Planner. During a Barron’s Live event, Kotlikoff said taking Social Security early to keep your investment portfolio intact, when adjusted for risk, can lead to negative returns. Social Security is also protected against inflation, as there is a cost-of-living adjustment, which is a bonus for retirees whether they have started claiming or not.

I will see: Why you should wait to claim Social Security, even if the shares fall

There is no doubt that there is interest in taking out a 401 (k) to defer Social Security benefits. In a study on a 401 (k) bridge option, which is when investors use assets from their retirement accounts equivalent to Social Security benefits so that they can delay the claim, more than a third of the people ls gave information about this option they chose to try it. that. This survey, conducted by NORC of the University of Chicago and the Center for Retirement Research at Boston College, was probably the first time these respondents had heard of a “bridge,” and if there was more exposure to this option in the retirement accounts, more Americans can choose it on their own retirement trips, Alicia Munnell, director of the Boston College Retirement Research Center, wrote in MarketWatch.

Of course, waiting to get Social Security is not always the best option. One of the many factors that retirees should consider when deciding when to claim includes medical history and condition, as well as longevity: Someone who only hopes to live until the mid-70s would not enjoy the benefits for who worked hard if they only started claiming 70. In other cases, people may use Social Security as a component of their retirement income strategy, combining it with annuities or a pension, and would prefer their vehicles to retire. Retirement savings, such as a 401 (k) or IRA, will continue to grow for decades to come.

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