Should I Use My Social Security to Fund My Children’s Retirement?

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Q. I have more than enough to fund my retirement and I plan on retiring by age 62. I am considering taking my Social Security payout at age 62 and investing it in fairly aggressive stock funds for each of my two kids. I would like to put it into a trust that wouldn’t allow them to access the money until they are 60 years old to help fund their retirement.

My thought is that the years of compound interest would make the reduction of social security income by not waiting until full retirement age to draw worth it. What are your thoughts on this strategy?

Dear reader,

This is an excellent question. You should think about it carefully and discuss it with your husband, family, trusted investment advisors and lawyers. Investing your early retirement monthly payments can help you increase your capital, especially if you plan to invest it over time. To determine if it’s worth it, you should explore your options and thoughtfully weigh the pros and cons.

A good place to start is to determine what your social security benefits will be at the moment you expect to retire. The earliest you can begin receiving Social Security benefits is at 62, at which point you will receive 30% less than if you would retire at your full retirement age. If you want to estimate your expected monthly payments, you can use the Social Security online calculator to help you figure it out. It sounds like you already have an investment strategy in mind. Still, it wouldn’t hurt if you discuss it with a financial investor who could look at your specific numbers and give you some projections.

It’s recommended that you consult an attorney about your options to set up a trust fund.  There are a couple of options that can help you allocate your assets in certain ways and to help you save on taxes. It’s in your best interest to know the pros and cons of each. For instance, if you set up an irrevocable trust fund, it cannot be amended, altered or terminated without the permission of your beneficiaries. Also, since those assets are transferred to your beneficiaries, they won’t be counted as part of your earned income, and therefore, you won’t be responsible for paying taxes on those assets. Your beneficiaries will be responsible for repaying those taxes.

If you set up a revocable trust or living trust, you, as the grantor, can manage the trust any way you want. These assets will be counted as part of your income, and you’ll be responsible for paying taxes. There are some provisions and strategies that you can include in your trust to help you save on taxes, but you’ll still be responsible for some of it. Understanding how these trust funds affect your financial life can help you confidently make an informed decision.

Based on the details you have shared, you seem to be a very savvy planner when it comes to preparing for your family’s future. Investing your extra cash is always a good idea, especially if you’ll benefit from compounding interest in the long-run. Talk to your lawyer and discuss how your investment strategy can affect you and your children now and in the future. Good luck!

Bruce McClary, Vice President of Communications

Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

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*Some questions have been shortened and/or altered for publication purposes while others have been published as is.