Social Security cards laying on top of American twenty dollar bills

When it comes to retirement planning, Social Security is a critical income stream that often serves as the foundation for many retirees' financial well-being. Much like creating a treatment plan for a patient, your Social Security strategy needs to be carefully coordinated with other elements of your financial life to achieve the best outcome.

This blog will walk you through how to maximize your benefits, including spousal options, how working affects your Social Security, and how to incorporate it all into a broader retirement income plan. With the right strategy, you can ensure your Social Security works as efficiently as possible, whether you claim early or late, and whether you continue working or transition fully into retirement.

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1. Understanding When to Claim Social Security: The Age Matters

Social Security offers flexibility in when you can start receiving benefits. The timing of your claim has a big impact on how much you’ll receive for the rest of your life.

1. Early Claiming (Age 62): The earliest you can start collecting Social Security.

Benefit: Income starts flowing sooner.

Drawback: Monthly benefits are permanently reduced by about 25-30% if you claim before your full retirement age (FRA).

When it makes sense: If you have a shorter life expectancy or need income immediately, this can be the right choice.

Full Retirement Age aka FRA (66-67, depending on your birth year): Claiming at your FRA means you’ll receive 100% of your benefit based on your earnings history.

Delayed Retirement (Age 70): For every year you delay past FRA, your benefit increases by 8% annually up to age 70.

When it makes sense: If you are healthy and have other income sources, delaying Social Security provides a larger monthly income for the rest of your life.

Key Takeaway: If you want to maximize your benefit and can afford to wait, delaying until 70 offers the highest payout. However, if you need income sooner or have health concerns, claiming earlier might make more sense.

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2. Optimizing Spousal Benefits: Don’t Leave Money on the Table

Spousal benefits can be a powerful way to boost household income in retirement. Here’s how it works:

• Eligibility: The lower-earning spouse can receive up to 50% of the higher-earning spouse’s benefit if claimed at FRA.

• Claiming Early: If the spouse claims before FRA, their spousal benefit will be reduced.

• Both Spouses Delaying: Even if the lower-earning spouse delays their own benefit, spousal benefits max out at FRA—delaying past FRA won’t increase the spousal benefit.

• Widow(er) Benefits: A surviving spouse can switch to 100% of the deceased spouse’s benefit if it’s higher than their own.

Example:
If your spouse's benefit is $3,000 at their FRA and you are eligible for a spousal benefit, you could receive up to $1,500. If your own benefit is smaller than that amount, it makes sense to claim the higher spousal benefit.

Strategy Tip: Coordinating when each spouse claims benefits can maximize household income. For example, the lower-earning spouse may claim their benefit early, while the higher-earning spouse delays until age 70 to lock in the highest possible payout.

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3. Integrating Social Security into a Comprehensive Income Plan

Just as doctors treat the whole patient—not just the symptoms—you need a plan that integrates Social Security into your broader financial picture. The key is to ensure Social Security works harmoniously with other income streams, such as pensions, 403(b)s, or IRAs.

Scenario 1: If You Continue Working After Claiming Social Security

If you plan to keep working after starting Social Security, it’s essential to understand how earning income impacts your benefits:

• Before Full Retirement Age: If you claim Social Security and work, your benefits could be reduced if your earnings exceed the annual limit ($21,240 in 2024). For every $2 you earn above the limit, $1 is temporarily withheld from your benefits.

• The Year You Reach FRA: The income limit increases significantly ($56,520 in 2024), and only $1 is withheld for every $3 earned above the limit.

• After FRA: Once you reach full retirement age, there’s no reduction in benefits, no matter how much you earn.

Planning Tip: If you plan to keep working, it may make sense to delay Social Security to avoid penalties and maximize your future benefits. Alternatively, you could claim early and accept reduced benefits if you need the cash flow.

Scenario 2: If You Fully Retire After Claiming Social Security

For those fully retiring, the goal is to create a steady, sustainable income stream. Social Security will play a major role, but coordinating withdrawals from other accounts is essential to minimize taxes and ensure your savings last.

INCOME PLANNING FOR RETIREES:

• Rebalancing Your Portfolio:
  Incorporate Social Security as a fixed income source in your overall asset allocation. With Social Security acting like a bond, you may be able to take on more growth-oriented investments in your other accounts.

• Sequence of Withdrawals:

  Instead of a one-size-fits-all approach, consider a coordinated withdrawal strategy. Balancing distributions from taxable, tax-deferred (like IRAs and 401(k)s), and even tax-free accounts can help you maintain your desired tax bracket, optimize Social Security taxation, and make your retirement savings last longer. A tailored plan ensures that each dollar works smarter for your overall financial health.

• Minimize Social Security Taxes:

  Up to 85% of your Social Security benefits can be taxed if your combined income (Social Security + other income) exceeds certain thresholds. Instead of relying on Roth IRA withdrawals early in retirement, consider implementing a Roth conversion strategy during years of low or no income—often before Social Security benefits begin or while delaying them until age 70. This approach allows you to move assets from tax-deferred accounts to a Roth IRA at lower tax rates, potentially reducing your taxable income later in retirement and minimizing the impact on your Social Security benefits.

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4. Social Security in the Context of Longevity and Inflation

While Social Security provides a reliable income stream, it’s important to think about the long-term risks you may face in retirement—especially longevity risk and inflation.

• Longevity Risk: If you live well into your 90s, delaying Social Security can help make sure you have a higher income stream later in retirement and preserve your savings. Example: A retiree who claims at 70 will receive a larger monthly check that will continue to grow with inflation over the years.

• Inflation Protection: Social Security benefits include Cost of Living Adjustments (COLAs). In high-inflation environments, these COLAs help maintain your purchasing power. While COLAs may not keep up with every expense, they offer more protection than many fixed-income sources.

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5. Putting It All Together: A Holistic Approach to Retirement Income

Here’s how to pull all these pieces together into a cohesive Social Security and retirement income plan:

1. Evaluate Your Health and Longevity Prospects: If you expect to live a long life, delaying benefits makes more sense. If health concerns arise, early claiming may be better.

2. Coordinate with Your Spouse: Decide when each spouse should claim benefits to maximize total household income.

3. Plan Around Your Work Status: If you continue working, consider delaying Social Security to avoid reductions and taxes.

4. Incorporate Social Security with Other Income Sources: Use a tax-efficient withdrawal strategy to balance Social Security with pensions, investments, and other savings.

5. Account for Inflation and Longevity Risk: Ensure your plan remains flexible to account for rising costs and a potentially long retirement.

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Conclusion: Social Security as Part of Your Retirement Treatment Plan

Planning for Social Security is like creating a well-thought-out treatment plan—it requires understanding your options, making the right decisions at the right time, and coordinating with other elements of your financial life. Whether you continue working after claiming Social Security or fully retire, your strategy should reflect your unique circumstances, health, and goals.

Remember, Social Security isn’t just about when you claim—it’s about how you integrate it into a larger income plan that keeps you financially healthy throughout retirement. Much like medicine, there’s no one-size-fits-all solution. A thoughtful strategy, tailored to your needs, can ensure your retirement income plan works just as well as a carefully prescribed course of treatment.

If you’re ready to build or adjust your Social Security strategy, consider sitting down with a financial planner to create a customized plan for your future. After all, the right prescription can make all the difference.

Partnering with Outside The Box Financial Planning (OTBFP) offers numerous benefits for individuals seeking college planning, retirement planning, small business support, wealth management, and beyond.  As a fee-only fiduciary with a comprehensive approach, unbiased advice,  and transparent fee structure, OTBFP acts as a trusted advisor who prioritizes your best interests. Click here to schedule a complimentary “Fit” meeting to determine if we would make a good mutual fit.

Remember, financial decisions have long-lasting implications, and working with a professional like the financial professionals of Outside The Box Financial Planning can provide the expertise and guidance necessary to make informed choices that align with your financial aspirations.

When it comes to managing healthcare expenses efficiently, Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) can be powerful tools. Think of them like different types of medical tools in a healthcare professional’s kit—each designed for specific uses and benefits. However, just like choosing the right treatment plan for a patient, it’s important to understand how these accounts work so you can make the most of them. In this post, we’ll explore the features, advantages, and strategies to optimize FSAs and HSAs, helping you keep more of your hard-earned money while managing your healthcare costs effectively.

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FSA vs. HSA: What's the Difference?

Both FSAs and HSAs allow you to set aside money tax-free to cover medical expenses, but they have different rules and purposes. Let’s break it down by using a relatable analogy:

Imagine FSAs and HSAs as two types of gym memberships. One gym gives you a “use-it-or-lose-it” deal—if you don’t show up and use your sessions by the end of the year, they disappear (that’s your FSA). The other gym allows you to carry over unused sessions from year to year, even building them up for the long term (that’s your HSA). Both memberships offer value, but they’re structured very differently.

The Basics of FSAs:

• Offered through employers: You must sign up during open enrollment.

• Use-it-or-lose-it rule: Most of the money must be spent within the plan year, though some employers allow a grace period or carry over a small amount (typically $610 in 2024).

• Annual contribution limit: $3,200 per employer in 2024.

• Expenses covered: Things like doctor’s visits, prescriptions, copays, and medical supplies.

• Pre-tax savings: Contributions are not subject to federal income tax, Social Security tax or Medicare tax, saving you money on taxes.

The Basics of HSAs:

• Paired with a high-deductible health plan (HDHP): Only available if you have a qualifying health insurance plan.

• No expiration date: Your savings roll over from year to year and can be invested for growth.

• Annual contribution limits (2024): $4,150 for individuals and $8,300 for families. If you’re 55 or older, you can add a $1,000 catch-up contribution.

• Triple tax benefit: Contributions are pre-tax, the growth is tax-free, and withdrawals for qualified expenses are tax-free.

• Expenses covered: Same as FSAs, plus additional flexibility like using funds for Medicare premiums or long-term care in retirement.

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Which One Should You Use?

Choosing between an FSA and an HSA depends on your health plan and personal situation. It’s similar to deciding between a sprint or a marathon. FSAs are built for short-term, planned expenses—like sprinting toward the finish line by the end of the year. HSAs, on the other hand, are better for those playing the long game—saving for healthcare expenses years, or even decades, down the road.

When to Use an FSA

• You have predictable medical expenses: If you know you’ll need glasses, dental work, or prescriptions this year, an FSA can help cover those costs tax-free.

• Your employer offers a grace period or rollover: If you have some flexibility with unused funds, you’re less likely to lose what you contribute.

• You don’t qualify for an HSA: FSAs can be the next best thing if you aren’t enrolled in a high-deductible health plan (HDHP).

When to Use an HSA

• You have an HDHP: If you’re enrolled in a high-deductible health plan, maximizing your HSA contributions is often a smart move.

• You want to build a healthcare nest egg: Think of your HSA as a retirement account for medical expenses. Over time, those unused dollars grow, providing a valuable safety net for future healthcare needs.

• You’re looking for investment opportunities: Some HSAs allow you to invest your contributions, helping your savings grow tax-free.

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How to Optimize FSAs and HSAs in Your Life

Once you’ve chosen the right account—or maybe you’re lucky enough to have access to both—it’s time to optimize them. Let’s dive into a few strategies that will help you get the most out of these accounts.

Strategy #1: Plan Your Contributions Wisely

Contributing to these accounts can feel a bit like ordering supplies for the hospital floor—you want to ensure you have enough on hand without overstocking. With an FSA, aim to contribute an amount close to what you know you’ll need. Too little, and you miss out on tax savings; too much, and you risk forfeiting unused funds.

With an HSA, on the other hand, maxing out contributions (if possible) can be a great long-term strategy. If you don’t use all the funds this year, they’ll be there when you need them—and you’ll benefit from compounding growth over time.

Strategy #2: Use Your FSA for Predictable Expenses

Think of an FSA as a tool for those everyday medical expenses you know are coming. Dental check-ups, vision exams, prescriptions—these are all perfect candidates for FSA funds.

If your employer offers an FSA rollover, make sure to keep track of how much can carry over into the next year, so you don’t accidentally leave money on the table.

Strategy #3: Treat Your HSA Like a Retirement Account

If your HSA funds aren’t needed for immediate medical expenses, consider investing them. This can be a powerful way to grow your savings for future healthcare costs, much like building a retirement portfolio. In fact, many people don’t touch their HSA funds at all during their working years, opting to let the balance grow until retirement. Once you reach age 65, you can even use HSA funds for non-medical expenses (though you’ll pay regular income tax on those withdrawals, similar to a traditional IRA).

Strategy #4: Keep Receipts and Stay Organized

Managing these accounts is like keeping patient records—good organization makes all the difference. For both FSAs and HSAs, it’s essential to keep receipts for your expenses. FSAs often require proof of eligible purchases, and HSAs are subject to IRS audits if withdrawals are questioned.

Some HSA providers even allow you to submit receipts online and store them digitally, creating a “paper trail” that can make life easier down the road.

Strategy #5: Enroll in a Dependent Care FSA

Think of a Dependent Care FSA as a prescription for reducing the financial stress of childcare, allowing you to save money pre-tax for daycare, after-school programs, or even elder care. Just like preventive medicine can save you from bigger health issues down the road, using this account can shield your wallet from hefty caregiving costs. By leveraging this benefit, you can create a healthier financial routine while ensuring your loved ones get the care they need.

In Illinois, like in most states, accessing a Dependent Care Flexible Spending Account (FSA) typically involves enrolling through your employer's benefits program during open enrollment. Here's how you can get one:

1. Check Your Employer's Benefits Package: Dependent Care FSAs are employer-sponsored, so confirm with your HR or benefits department that your company offers this option.

2. Enroll During Open Enrollment: Most companies have an annual open enrollment period, usually in the fall, where you can select or adjust your benefits. If you have a qualifying life event (e.g., having a child), you may also be able to enroll or make changes mid-year.

3. Set Your Contribution: During enrollment, decide how much of your pre-tax income you want to allocate to the Dependent Care FSA for the year (up to the IRS limit of $5,000 for married couples filing jointly or $2,500 if filing separately).

4. Submit Claims: As you incur eligible expenses (e.g., daycare, after-school programs, summer camps), submit receipts to your FSA provider for reimbursement.

Ask HR for a detailed benefits guide to ensure you're making the most of your options!

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Tax Savings and Peace of Mind

Both FSAs and HSAs offer significant tax advantages that can lower your healthcare costs, but they also provide peace of mind—knowing that you have a financial cushion for medical expenses. Think of it like preventive care: just as staying on top of your health can prevent costly treatments later, managing these accounts wisely can save you from financial stress down the road.

Using these accounts effectively can also boost your financial wellness. Every dollar saved on taxes is a dollar that stays in your pocket, and those savings can add up over time. Whether you’re managing healthcare costs today or building a nest egg for tomorrow, FSAs and HSAs provide tools that help you take control of your financial health.

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Final Thoughts: Making the Most of Your Healthcare Toolkit

FSAs and HSAs may feel like alphabet soup at first, but once you understand how they work, they become essential tools in your financial toolkit. Just like a good treatment plan depends on the needs of the patient, the best account for you depends on your specific situation.

If you have regular, predictable expenses, an FSA can be a great way to cover them while saving on taxes. If you’re playing the long game, an HSA offers unmatched flexibility, investment options, and the ability to carry your savings into retirement. And if you can manage both? You’ll be setting yourself up for success—like having both an emergency room and a long-term care unit at your disposal.

At the end of the day, using FSAs and HSAs effectively is about planning, saving, and staying organized. Whether you’re covering today’s expenses or preparing for the unknowns of the future, these accounts give you the tools you need to manage healthcare costs and maintain financial wellness. So, open that toolkit, use these accounts wisely, and enjoy the peace of mind that comes with knowing you’ve got your healthcare expenses covered.

Partnering with Outside The Box Financial Planning (OTBFP) offers numerous benefits for individuals seeking college planning, retirement planning, small business support, wealth management, and beyond.  As a fee-only fiduciary with a comprehensive approach, unbiased advice,  and transparent fee structure, OTBFP acts as a trusted advisor who prioritizes your best interests. Click here to schedule a complimentary “Fit” meeting to determine if we would make a good mutual fit.

Remember, financial decisions have long-lasting implications, and working with a professional like the financial professionals of Outside The Box Financial Planning can provide the expertise and guidance necessary to make informed choices that align with your financial aspirations.

Woman typing on a calculator with tax papers scattered on desk

The end of the year is fast approaching, which means you’re probably focused on holiday shopping, family gatherings, and maybe squeezing in some well-deserved rest. But if you take just a little time to do some year-end tax planning, you’ll thank yourself when spring rolls around. Think of it like changing the oil in your car before winter—you invest a little effort now to avoid bigger, more expensive problems down the road.

The good news? You don’t have to be a tax expert to make smart moves that keep more money in your pocket. Here’s a year-end checklist to guide you through it, with simple strategies to save on taxes and make the most of what you’ve earned.

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1. Max Out Retirement Contributions: Boost Savings While Reducing Taxes

Deadline: December 31

Saving for retirement isn’t just about securing your future—it’s also a quick way to lower your taxable income today. Every dollar you contribute to a 401(k), 403(b), or similar plan reduces your taxable income, which means less money owed to Uncle Sam.

• Contribution Limits for 2024:

• Up to $23,000 for most people (and an extra $7,500 if you’re 50 or older).

• How to Do It:
  Check your paystub to see if you’re on track to max out your contributions. If not, consider bumping up your payroll deductions for the rest of the year—especially if you got a year-end bonus.

Why It Matters:

Think of it like using a coupon at the store. You’re buying yourself a more secure future and paying less today. That’s a win-win.

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2. Use Your HSA: Save Now for Health Expenses Later

Deadline: December 31 for contributions to count toward this year’s taxes

If you have a Health Savings Account (HSA) through a high-deductible health plan, don’t overlook it. HSAs offer a rare triple tax benefit:

1. Contributions reduce your taxable income.

2. Investments inside the HSA grow tax-free.

3. Withdrawals for medical expenses are tax-free too.

• Contribution Limits for 2024:

• $4,150 for individuals, $8,300 for families, and an extra $1,000 if you’re 55 or older.

Why It Matters:

Think of your HSA like a rainy-day fund that doubles as a health piggy bank. It’s there for you now, and if you don’t need it right away, it rolls over and grows for the future—like a trusty umbrella you keep in the closet.

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3. Tax-Loss Harvesting: Turning Market Losses into Savings

Deadline: December 31

If you have investments in a taxable brokerage account, take a look at how your portfolio is performing. This has been a bumpy year for the markets, and you might have some losing stocks or funds. Selling those losers can help reduce the taxes you owe on other investments that made a profit.

• How It Works:
  Losses can offset gains, dollar for dollar. If your losses exceed your gains, you can subtract up to $3,000 from your regular income, and anything left over can be carried forward into future years.

Why It Matters:

Think of it like cleaning out your closet. You get rid of the old things you don’t need (investments that aren’t performing) and make room for new ones (or at least get some tax savings). It’s a financial fresh start.

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4. Charitable Contributions: Do Good, Get a Break

Deadline: December 31

Donating to charity not only feels good—it can also reduce your tax bill if you itemize deductions. You can give cash, stock, or even household items, and it all counts toward your charitable deduction.

• Pro Tip:
  If you have stocks that have gone up in value, donating them directly to a charity can help you avoid capital gains taxes. You’ll get the full deduction for the stock’s current value without paying taxes on the gain.

Why It Matters:

This is like donating clothes to Goodwill. You declutter your life, help someone else, and come tax time, you might get a little bonus for your generosity.

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5. Check Your FSA: Use It or Lose It

Deadline: December 31, though some plans give a short grace period into the new year

If you have a Flexible Spending Account (FSA) through your employer, now’s the time to check your balance. Unlike HSAs, most FSAs come with a “use it or lose it” policy. Any money left over in the account at the end of the year (or after the grace period) disappears.

• How to Avoid Losing It:
  Schedule any last-minute doctor appointments, stock up on prescription glasses, or buy eligible medical supplies. Many plans also cover things like first-aid kits or sunscreen.

Why It Matters:

Imagine if a gift card in your wallet expired at the end of the year. Wouldn’t you want to use it while you still could? Your FSA works the same way.

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6. Estimate Your Taxes: Avoid a Surprise Bill

Deadline: December 31

Did you get a big bonus this year? Sell some investments? Or start a side hustle? If so, you might owe more in taxes than expected. The IRS wants you to pay taxes as you earn, and if you underpay, you could face a penalty.

• How to Check:
  Use an online tax calculator or ask your accountant for a quick estimate. If it looks like you’ll owe more, you can make an estimated tax payment by December 31 to avoid penalties.

Why It Matters:

This is like checking the gas gauge before a road trip. If you’re running low, it’s better to fill up now than get stranded on the highway (or hit with a surprise tax bill).

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7. Review Your Beneficiaries: Make Sure They’re Up to Date

Deadline: Ongoing, but the end of the year is a great time to check

Life changes—like getting married, divorced, or having kids—should prompt a review of your beneficiary designations on things like retirement accounts and life insurance policies. These designations override what’s written in your will, so it’s important they reflect your current wishes.

Why It Matters:

Think of it like updating your emergency contacts. If something happens, you want the right people to be notified and taken care of, without complications.

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8. Take Your RMDs if You’re 73 or Older

Deadline: December 31

If you’re 73 or older, the IRS requires you to take Required Minimum Distributions (RMDs) from certain retirement accounts, like traditional IRAs or 401(k)s. If you don’t, you could face a steep penalty—25% of the amount you should have withdrawn.

• What If You Don’t Need the Money?
  Consider using your RMD to make a Qualified Charitable Distribution (QCD). This allows you to donate directly to a charity and satisfy your RMD without adding to your taxable income.

Why It Matters:

Think of it like taking the trash out before it overflows. Even if you don’t need the space right away, it’s better to take care of it now than deal with a mess later (or in this case, a tax penalty).

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Wrapping It All Up: Start the New Year Strong

Year-end tax planning doesn’t have to be complicated, but it does require some attention. A little bit of effort now can save you money and prevent future headaches. It’s just like prepping for a road trip—if you check the oil, fill the gas tank, and pack your snacks ahead of time, the ride will be much smoother.

If any of this feels overwhelming, don’t hesitate to reach out to a financial planner or tax advisor. Having someone in your corner to guide you through these steps can make all the difference—just like having a good mechanic for your car or a trusted doctor for your health.

Here’s to finishing the year strong, staying organized, and keeping more of what you’ve worked so hard to earn!

Partnering with Outside The Box Financial Planning (OTBFP) offers numerous benefits for individuals seeking college planning, retirement planning, small business support, wealth management, and beyond.  As a fee-only fiduciary with a comprehensive approach, unbiased advice,  and transparent fee structure, OTBFP acts as a trusted advisor who prioritizes your best interests. Click here to schedule a complimentary “Fit” meeting to determine if we would make a good mutual fit.

Remember, financial decisions have long-lasting implications, and working with a professional like the financial professionals of Outside The Box Financial Planning can provide the expertise and guidance necessary to make informed choices that align with your financial aspirations.