Could Raising the Top Social Security Age to 72 Help Retirees?
Make sure your worst enemy doesn't live between your own two ears.—Laird Hamilton
Wade Pfau is a professor of retirement income in the Ph.D. in Financial and Retirement Planning program at the American College of Financial Services. He also is co-director of the New York Life Center for Retirement Income. He is a certified financial analyst and retirement income certified professional.
Pfau is advocating to increase the maximum age for claiming Social Security benefits, so says a recent Think Advisor Magazine article. It begins by saying, "If the Securing a Strong Retirement Act of 2021, which passed the House Ways and Means Committee Wednesday, is eventually passed by Congress and enacted into law, the age at which required minimum distributions from retirement accounts begin will be raised gradually to 75 from 72."
But perhaps a better idea would be to raise the maximum age for claiming social security from age 70 to 72 and extend the delayed retirement credits, which increase benefits by 8% for every year a retiree waits to claim to that age. It may allow them to spend down existing retirement accounts or make a strategic Roth conversion to help reduce taxes on their Social Security benefits.
If you're doing tax-efficient retirement planning generally, the Required Minimum Distribution (RMDs) won't be binding on you. Likely you'll want to spend more than your RMD anyway. When the RMD age was 70, it and Social Security were pretty well lined up. If you retired before 70, you could do some strategic Roth conversions that would help you lower subsequent taxes on your Social Security benefit. With the way Social Security taxation works, once people hit 70 and turn on Social Security, delaying their RMD age later may not have much impact.
But if you're trying to help retirees more, let them have further deferral on Social Security to be more aligned with them to do more strategic Roth conversions before Social Security begins. Reward them by offering additional delay credits on Social Security.
Did you know that a Reverse Mortgage is a great way to provide a "tax free”, income stream while you wait to claim Social Security?