Welcome to Cornerstone Clips: Understanding Retirement Benefits

Hi, I’m Tyler Scott, a Wealth Advisor and Certified Financial Planner™ at Cornerstone Wealth Strategies. In this edition of Cornerstone Clips, we’re taking a high-level look at some of the key components of retirement benefits. While every situation is unique, this overview can help you begin thinking about your options.

We’ll briefly touch on:

• Pension benefits and when to consider taking them
• Survivorship options and how they affect your payout
• The impact of inflation on fixed retirement income
• Social Security strategies
• 401(k) contribution limits
• Income planning and consulting in retirement

Let’s start with pensions.

Pensions: Timing and Considerations

For many, pension benefits begin at retirement, but the right timing depends on your tenure and the specific terms of your plan. If you’ve only worked a few years with your employer, you may consider deferring benefits. Most plans can provide projections to help you evaluate the impact of starting earlier or later.

In many cases, pensions are fully funded or unreduced at age 65, but this can vary. It’s important to request a personalized projection to understand how your benefit might change based on your retirement date.

Also, keep in mind that in some employer plans, you must begin receiving your pension in order to qualify for retiree healthcare benefits. Be sure to confirm this with your HR or benefits department.

Choosing a Survivorship Option

When you begin receiving your pension, you’ll need to choose a survivorship option. This determines whether your spouse or partner will continue receiving benefits after your passing.

• Single Life Option: Provides the highest monthly benefit, but payments stop at your death.
• Joint and Survivor Options: Provide a reduced monthly benefit during your lifetime, but continue payments to your spouse at 100%, 75%, 66⅔%, or 50% of the original amount.
• Period Certain Options: Guarantee payments for a minimum number of years (e.g., 10 or 20), even if both recipients pass away early. In that case, a named beneficiary would receive the remaining payments.

These decisions should be made carefully, as they can significantly affect your long-term income and your spouse’s financial security.

The Impact of Inflation

Most pensions do not include cost-of-living adjustments. That means your monthly benefit will remain fixed, even as the cost of living rises.

For example, if your pension pays $100,000 annually and inflation averages 3% per year, the purchasing power of that income could drop to about $76,000 in just 10 years. That’s why it’s important to consider other income sources or strategies that can help offset inflation over time.

Social Security: Timing, Strategy, and Working in Retirement

One of the most common questions we hear is: “When should I file for Social Security?” The answer depends on your age, income needs, health, and overall retirement strategy.

Full Retirement Age (FRA)

Your full retirement age is the age at which you’re eligible to receive your full Social Security benefit. For individuals born in 1960 or later, FRA is age 67. If you were born earlier, your FRA may be slightly lower—for example, someone born in 1956 would reach FRA at 66 and 4 months.

Filing Early or Delaying Benefits

You can file for Social Security as early as age 62, but doing so results in a reduced monthly benefit. For those with an FRA of 67, filing at 62 would reduce benefits by approximately 30%. On the other hand, delaying benefits up to age 70 increases your monthly payout by about 8% per year beyond FRA.

Deciding when to file involves trade-offs. Filing early means receiving benefits sooner, but at a lower amount. Delaying may result in higher monthly income, but you’ll need to wait longer—and possibly draw from other assets in the meantime. The “break-even” point, where delayed benefits catch up to early filing, typically occurs in your late 70s or early 80s, depending on your specific situation.

Working While Receiving Benefits

If you plan to work while receiving Social Security before reaching FRA, your benefits may be temporarily reduced. In 2025, the earnings limit is $23,400. If you earn more than that, your benefit is reduced by $1 for every $2 earned over the limit.

In the year you reach FRA, the limit increases to $62,160, and the reduction becomes $1 for every $3 earned over that amount. Once you reach FRA, there is no reduction in benefits regardless of income.

There’s also a special rule for the first year of retirement. If you retire mid-year—for example, in July at age 63—the Social Security Administration will evaluate your earnings monthly rather than annually. This allows for flexibility if you earned more earlier in the year but plan to reduce income going forward.

401(k) Planning: Contributions, Tax Strategies, and Milestones

Your 401(k) plan is a powerful tool for retirement savings, and understanding its structure can help you make informed decisions. At Battelle, the plan is held with Vanguard and offers several contribution types: pre-tax, Roth, and post-1986 after-tax. Each has unique tax implications and planning opportunities.

Contribution Types

• Pre-Tax Contributions: These reduce your taxable income today. The money grows tax-deferred, and withdrawals in retirement are taxed as ordinary income. You can access these funds penalty-free at age 59½ or under the Rule of 55, which allows penalty-free withdrawals if you retire in the year you turn 55 or later.
• Roth Contributions: Made with after-tax dollars, Roth contributions grow tax-free if held for at least five years and withdrawn after age 59½. This can provide valuable flexibility in retirement, especially for managing your tax picture.
• Post-1986 After-Tax Contributions: These are also made with after-tax dollars, but unlike Roth contributions, the earnings grow tax-deferred and are taxable upon withdrawal. The basis (your original contributions) can be withdrawn penalty-free. These contributions can be used in a mega backdoor Roth strategy, where you roll the basis into a Roth IRA and the growth into a traditional IRA.

Contribution Limits (2025)

• Standard Limit: $23,500 for participants under age 50
• Catch-Up Contributions:
• Ages 50–59: $7,500
• Ages 60–63: $11,250 (under Secure Act 2.0)
• Age 64+: Reverts to $7,500

The total plan contribution limit, including employer match and after-tax contributions, can reach up to $70,000, plus applicable catch-up amounts.

Strategic Considerations

Choosing between pre-tax, Roth, and after-tax contributions depends on your current and expected future tax brackets. For example:

• If you’re in a high tax bracket now and expect to be in a lower one later, pre-tax contributions may be more beneficial.
• If you anticipate higher taxes in retirement or want to leave assets to heirs, Roth contributions may offer more flexibility and tax efficiency.

Diversifying across contribution types can help you manage income needs, minimize taxes, and maintain control over your retirement withdrawals. For instance, having Roth funds available may allow you to cover large expenses without increasing your taxable income.

Legacy and RMD Planning

Under current rules, required minimum distributions (RMDs) begin at age 73 or 75, depending on your birth year. Pre-tax assets are subject to RMDs, which can increase your taxable income and affect Medicare premiums. Roth IRAs, however, are not subject to RMDs during your lifetime, making them a useful tool for estate planning.

Additionally, inherited IRAs must be withdrawn within 10 years under current law. Roth assets may be more favorable for heirs, as withdrawals typically do not affect their tax situation.

Healthcare in Retirement: Medicare and Supplemental Coverage

Healthcare is a critical component of retirement planning. Costs tend to rise faster than general inflation, and with longer lifespans, it’s important to understand how Medicare works and what options are available to help manage future medical expenses.

Understanding Medicare: Parts A, B, C, and D

Medicare is the federal health insurance program for individuals age 65 and older. It includes four parts:

• Part A: Hospital insurance. Typically premium-free if you or your spouse paid Medicare taxes while working.
• Part B: Medical insurance. Covers outpatient care, doctor visits, and preventive services. Premiums are based on your modified adjusted gross income (MAGI) and range from $185 to $628.90 per month per person in 2025.
• Part C: Medicare Advantage plans. These are offered by private insurers and may include additional benefits like dental or vision.
• Part D: Prescription drug coverage. Costs vary by plan.

Enrollment Timing

If you’re already receiving Social Security benefits, you’ll be automatically enrolled in Medicare Parts A and B when you turn 65. If not, you can enroll during a seven-month window: three months before, the month of, and three months after your 65th birthday.

If you’re still working and covered by employer health insurance, you may choose to enroll in Part A (since it’s free) and defer Part B until retirement. In this case, your employer coverage remains primary, and Medicare is secondary. Once you retire, Medicare becomes your primary coverage.

Supplemental Coverage: Via Benefits

For eligible retirees, Battelle offers access to Via Benefits, a resource that helps coordinate supplemental Medicare coverage. If you qualify for retiree healthcare benefits, Via Benefits can assist in selecting a Medicare Advantage (Part C) or Medigap plan and may provide a Medicare reimbursement to help offset costs.

To access these benefits, you typically must be receiving your pension and meet tenure requirements. It’s a good idea to contact HR or Via Benefits directly as you approach age 65 to understand your options and ensure you’re enrolled in the appropriate coverage.

Income Planning in Retirement: Milestones, Strategies, and Flexibility

Effective income planning is about aligning your financial resources with your retirement goals. Let’s walk through key age-based milestones, income sources, and strategies to help you manage risk, taxes, and long-term sustainability.

Key Retirement Milestones

• Age 50: Eligible to make catch-up contributions to retirement accounts.
• Age 55: If you retire in the year you turn 55 or later, you may withdraw from your 401(k) without penalty under the Rule of 55 (does not apply to IRAs).
• Age 59½: Penalty-free withdrawals from IRAs and other retirement accounts.
• Age 62: Earliest age to claim Social Security benefits (with a reduced amount).
• Age 65: Eligible for Medicare.
• Age 66–67: Full retirement age for Social Security, depending on birth year.
• Age 73–75: Required minimum distributions (RMDs) begin, depending on your birth year.

Layering Income Sources

Retirement income typically comes from multiple sources:

• Social Security
• Pensions
• Personal savings and investments (e.g., 401(k), Roth IRA, brokerage accounts)

Understanding how these sources interact helps you plan for tax efficiency and long-term sustainability.

Withdrawal Strategies and Risk Management

A common rule of thumb is to withdraw no more than 4% annually from your investment portfolio to help preserve assets over time. However, your actual withdrawal rate should reflect your needs, market conditions, and time horizon.

If your essential expenses are covered by Social Security and a pension, you may not need to draw heavily from your investments. In such cases, maintaining a growth-oriented allocation—such as 60% to 80% in equities—may help combat inflation and support long-term goals. Your investment strategy should reflect your risk tolerance, income needs, and retirement timeline.

Tax Planning Opportunities

• Roth Conversions: If you have a large pre-tax retirement balance, converting some funds to a Roth IRA before RMDs begin may help manage future tax liability. This strategy can be especially effective if your income is temporarily lower in early retirement.
• Qualified Charitable Distributions (QCDs): Starting at age 70½, you can donate directly from an IRA to a qualified charity. This can reduce your taxable income and satisfy RMD requirements.
• Medicare IRMAA Planning: Medicare premiums are based on your modified adjusted gross income (MAGI) with a two-year lookback. Exceeding certain thresholds—even by a small amount—can increase your premiums significantly. Strategic income planning can help avoid these jumps.

Consulting and Business Income in Retirement

If you plan to consult or start a business in retirement, consider how that income may affect your Social Security benefits and tax situation:

• If you’ve already filed for Social Security and earn above the annual limit before full retirement age, your benefits may be temporarily reduced.
• There is a one-time option to withdraw your Social Security application and repay benefits if you decide to delay.
• Business structure matters. For small consulting engagements, a sole proprietorship may be sufficient. For higher income or longer-term work, forming an LLC or S-Corp may offer tax advantages—but it’s best to consult a tax professional.

Final Thoughts

Retirement planning is highly personal, and there’s no one-size-fits-all approach. Whether you’re evaluating withdrawal strategies, tax planning, or considering part-time work, our team at Cornerstone Wealth Strategies is here to help you navigate your options.

If you have questions or want to explore how these strategies apply to your situation, don’t hesitate to reach out. We’re here to support your journey.