Month: January 2025

Maximize Your Social Security Benefit – Explained

Written by Zachary Morris, CFP® on January 16, 2025.

Explore Social Security benefits planning, including eligibility, spousal benefits, and strategies to decide when to file for maximum impact.

Are you starting to receive notices about Social Security and wondering when to file or how much you’ll actually receive? Social Security is a cornerstone of retirement income, but navigating its complexities can be challenging. From understanding how your benefits are calculated to deciding the best time to claim, making informed decisions is essential to maximize what you receive.

This article breaks down everything you need to know about Social Security, including qualification requirements, benefit calculations, key terms, spousal and survivor benefits, and important considerations for filing based on your circumstances.

How Do You Qualify for Social Security?

Qualifying for Social Security requires earning 40 credits, which you accumulate by working full-time for at least 10 years. You earn one credit per quarter, and after 40 credits, you become eligible for benefits.

How Are Social Security Benefits Calculated?

Your benefits are based on your 35 highest-earning years. The Social Security Administration (SSA) averages these years to calculate your Average Indexed Monthly Earnings (AIME). Your AIME is then used to determine your Primary Insurance Amount (PIA), which is the benefit you’ll receive at your full retirement age.

Key Terms to Know

Full Retirement Age (FRA): This is the age at which you’re entitled to 100% of your PIA. If you were born before January 2, 1955, your FRA is 66. For those born after, the FRA increases incrementally up to 67.
Delayed Retirement Credits: If you delay claiming Social Security beyond your FRA, your benefit increases by 8% per year (non-compounded), up to age 70.
Early Filing Penalties: Filing before your FRA results in a reduction of benefits—potentially as low as 70% of your PIA if you file at age 62.

Spousal and Survivor Benefits

Spousal Benefits: If one spouse’s benefit is higher, the other spouse may be eligible for up to 50% of the higher earner’s PIA at their FRA. However, the higher-earning spouse must file for benefits before the spousal benefit becomes available.
Survivor Benefits: The surviving spouse receives 100% of the higher earner’s benefit. If the deceased spouse delayed claiming Social Security and earned delayed retirement credits, the survivor receives the higher amount. Survivor benefits can be claimed as early as age 60, allowing the survivor to let their own benefits grow until age 70 if advantageous.

What Happens if You’re Still Working?

If you file for Social Security while earning income, your benefits may be reduced based on your earnings. For example, in 2025, benefits are reduced by $1 for every $2 earned above $23,400 if you haven’t yet reached FRA. In the year you reach FRA, the reduction changes to $1 for every $3 earned above $62,160 until the month you reach full retirement age.

Making the Most of Social Security

Deciding when to file for Social Security is not a one-size-fits-all decision. Factors like your income, health, and financial needs play a role. For many, waiting beyond FRA to earn delayed retirement credits can make sense, while others may benefit from filing earlier, particularly in cases of spousal or survivor benefits.

Understanding how Social Security fits into your overall retirement strategy is critical. By reviewing your options, knowing key terms, and planning for potential reductions, you can make informed decisions that align with your goals.

If you’d like to learn more about optimizing your Social Security benefits, we’re here to help. Contact Paces Ferry Wealth Advisors to discuss your retirement strategy and how Social Security fits into your financial plan.

Can Small Business Owners REALLY Achieve Financial Freedom?

Written by Zachary Morris, CFP® on January 15, 2025.

As a small business owner, have you ever wondered, “How much do I need to sell my business for to retire comfortably?” In this video, I’ll guide you through the essential steps to calculate your number—the amount you need from the sale of your business to achieve your retirement dreams.

Planning for retirement as a business owner is different. Unlike traditional employees, your business is likely your largest asset—and your key to financial freedom. But how do you bridge the gap between your business’s current value and your ideal retirement target? That’s exactly what we’ll cover.

I’ll show you how to determine your “number” by considering factors such as your desired lifestyle, anticipated expenses, and current savings. I’ll also discuss strategies to increase your business’s value to close the wealth gap.

Building a strong team of financial advisors, CPAs, and legal experts is critical to navigating the complexities of a business sale and ensuring a smooth transition to retirement.

Whether you’re planning to sell in 2 years or 20, running your business with a buyer’s perspective will ensure you’re ready when the time comes. If you’ve ever felt unsure about whether your retirement goals are achievable, this video will provide clarity and direction.

Are You Making This COSTLY Backdoor Roth Mistake?

Written by Zachary Morris, CFP® on January 10, 2025.

If you’re planning a Backdoor Roth IRA conversion, understanding the pro-rata rule is crucial to avoid unexpected tax bills. This often-overlooked rule can significantly impact your retirement strategy, especially if you have pre-tax funds in any of your IRAs.

In this video, I explain the complexities of the pro-rata rule and how it can affect Backdoor Roth conversions. I’ll start with the basics of IRA contributions, breaking down how pre-tax and after-tax contributions differ. Understanding this distinction is key to helping your conversion go smoothly and minimizing additional taxes.

Additionally, I’ll guide you through the mechanics of Backdoor Roth IRAs, a strategy often used by high earners who exceed Roth contribution limits. You’ll learn to move after-tax contributions from a traditional IRA into a Roth IRA while avoiding unnecessary tax liabilities. Keeping track of your contributions and knowing the difference between pre-tax and after-tax funds is essential for creating a tax-efficient retirement strategy.

The pro-rata rule’s impact is also explored, especially how it applies across all your IRAs, even those held at different financial institutions. Using a practical example of $93,000 in pre-tax funds and a $7,000 Roth conversion, I’ll show how the IRS calculates taxable income during conversions. By understanding this rule, you can optimize your IRA transactions and avoid paying taxes on more than you need, helping you reach your retirement goals more efficiently.

The 4 Best Ways to Save for Your Child’s Future: Pros and Cons Explained

Written by Zachary Morris, CFP® on January 5, 2025.

In this video, I’m breaking down four popular ways to save for your child’s future—from college savings to long-term investment accounts—and weighing the pros and cons of each. If you’re exploring options for your family, understanding these choices can help you create a plan that aligns with your goals and your child’s needs.

We’ll discuss 529 plans, UTMA accounts, Roth IRAs, and Joint Accounts, covering their unique features and tax benefits, along with any potential drawbacks. From education savings to general-purpose funds, you’ll get a clear picture of which option might work best for your family’s needs.

We’ll explore how a 529 plan can optimize college savings, the flexibility of UTMA accounts, the retirement potential of a Roth IRA for kids, and the simplicity of Joint Accounts. Each has its own purpose and tax implications, so you can make an informed decision about what works best for your family.

4 Savings Options for Your Child’s Future:

529 Plan:
A 529 plan is a tax-advantaged savings account specifically for education expenses, allowing your investments to grow tax-free if used for qualified expenses. This is a great choice for college savings, though it does limit funds to educational purposes, and using funds for non-qualified expenses may incur penalties.

UTMA Account:
A UTMA (Uniform Transfers to Minors Act) account allows you to transfer assets to a child, which they gain control over at a certain age. These accounts offer flexibility in spending, so the funds aren’t restricted to education. However, since it’s in the child’s name, it may impact financial aid eligibility.

Roth IRA:
A Roth IRA for kids allows you to save for their future retirement by contributing earned income to this tax-advantaged account. This is a long-term savings strategy that grows tax-free. While it provides excellent retirement benefits, accessing the funds early may result in taxes and penalties.

Joint Account:
A Joint Account lets you and your child share an account for general savings or future expenses. It’s easy to set up and allows full control, but unlike other accounts, it doesn’t come with specific tax advantages or protections, which may limit its growth potential.

Cash Crunch? Here Are 4 Tax-Friendly Ways to Get Cash Quickly!

Written by Zachary Morris, CFP® on January 1, 2025.

Are you facing a short-term cash crunch and need money without triggering taxable events by liquidating your investments? In this video, I share four practical strategies to generate the funds you need quickly and efficiently, usng the example of making a down payment on a home purchase.

We will walk through the following strategies using an example where Bob and Jennifer are purchasing a $1.5 million home and need $225,000 for their down payment:

→ Home Equity Line of Credit (HELOC): Learn how to leverage the equity in your current home to secure funds for a down payment while keeping your mortgage terms intact.

→ Non-Purpose Margin Loan: Discover how borrowing against your investment portfolio can provide liquidity without triggering taxable events.

→ Intrafamily Loan: If you have a wealthy relative, you can borrow money through a structured family loan with favorable terms, avoiding tax complications.

→ IRA Rollovers: Explore how you can use an IRA for a temporary withdrawal, with the funds rolled back within 60 days, avoiding penalties and tax implications.

These strategies are ideal for those needing cash without disturbing long-term investments or assets. This video will help you understand the advantages and risks of each option.