As you look forward to your golden years, you likely want to do everything in your power to create the retirement of your dreams. Building a comprehensive retirement plan is essential to achieving this goal, and in order to do so, you must understand and factor in your Social Security benefits.
Although Social Security may not make up the bulk of your retirement income, maximizing the amount you receive can be key to creating the kind of retirement you are hoping for. Whether you are months or years from retirement, consider these three strategies from IMAFS, Boise’s top financial planning firm for physicians, to help you maximize your Social Security benefits.
Understand Your Full Retirement Age
Most people recognize 62 as the magic Social Security number or the age that you can finally begin collecting benefits. However, before you jump on that bandwagon, understand the advantages of waiting to collect until your “full retirement age.”
Your full retirement age (FRA) depends on the year you were born; those currently in the workforce will likely have a full retirement age of 66-67. Once you reach this age, you are able to claim your full Social Security payments. This will both increase the income you receive and benefit other family members who may elect to receive spousal or survivor benefits.
If you elect to receive benefits before your FRA, your benefit will be reduced. Additionally, if you have too much earned income before your reaching your FRA, you will have additional penalties to your benefit. Generally speaking, if you still plan on receiving any sort of employment income, you should wait to claim until your FRA.
Wait to Claim Until Age 70
Social Security is use-it or lose-it. That means life expectancy plays a huge role in maximizing your benefits. No one knows exactly when they will pass away, but current health and family genetic history can inform estimates. If you have a long life expectancy, consider delaying receiving your benefits.
After you reach your full retirement age, Social Security benefits increase by 8% each year you delay collecting them. This continues until age 70. So, if you truly want to collect the maximum amount of Social Security income and your situation allows you to wait, try to delay collecting until your 70th birthday. When delaying from your FRA to age 70, the breakeven age is typically around age 85.
Remember, this does not mean you have to continue working until age 70. If you retire earlier, consider using other sources of retirement income during the years between when you first retire and when you begin collecting Social Security.
Claim Spousal Benefits (and Time It Right)
Spouses are eligible to claim either their own Social Security benefit or a “spousal benefit,” whichever is higher. A spousal benefit is 50% of a spouse’s Social Security earnings. You can also reap spousal benefits from an ex-spouse as long as you were married for at least ten years.
There are many ways to use spousal benefits to your advantage when creating a plan to collect Social Security, although strategies will vary based on your current situation. Often, the higher-earning spouse should wait until age 70 to begin collecting, while the lower-earning spouse can begin collecting benefits sooner. Work with your financial advisor to determine the optimal strategy for your situation.
This list contains some of the most lucrative Social Security strategies, but it is not comprehensive. Additionally, all Social Security decisions should be made with the rest of your financial situation in mind. Working with an experienced and trusted advisor is important to maximizing the benefits you receive from Social Security and ensuring you meet your long-term financial goal.
Contact IMAFS today to learn more about retirement and wealth management for doctors in Boise, ID, and the surrounding areas.