Nearing retirement brings many questions and not all of them involve when to visit the grandkids or how to plan for that trip to Hawaii. Instead, many of them are centered around finances. Specifically, many future retirees are wondering about Social Security.
Although the Social Security program focuses on providing financial support for retirees, Social Security-based decisions often bring more stress and confusion than peace of mind. Nevertheless, education is a tried-and-true antidote for confusion. As you plan for retirement, consider asking these questions to get the most out of Social Security.
When Should I Claim my Benefits?
Most people associate “collecting Social Security” with the age 62. After all, your 62nd birthday commemorates eligibility for Social Security benefits. Although the availability of these benefits entices some to claim them right away, your future-self may thank you for waiting just a few more years.
The Social Security Administration designates “full retirement age” as the age when you can receive 100% of your retirement benefits. For those born between 1943 and 1954, full retirement age is 66. Those born after 1954 can expect a full retirement age of between 66 and 67, depending on birth year.
Enrolling in Social Security before your full retirement age can cause your benefits to be permanently reduced by up to 30%. On the other hand, by waiting beyond full retirement age, your benefits will increase 8% each year until age 70. In the real world, it looks like this: an individual claiming their benefits at age 70 will likely receive up to 76% more per month than an individual who begins collecting Social Security at age 62. *
Still, there is not one correct decision for everyone. If your goal is to maximize the total benefit you receive over your lifetime, you have to make assumptions about your life expectancy. If you take benefits early but live late, you leave money on the table. If you take benefits late but die early, you leave money on the table. So, your Social Security decisions should partly rest on your best guess of your life expectancy, based off of your current health, family history, and other relevant factors. If you will live beyond your early eighties, taking your benefits at age 70 will always be the total benefit-maximizing decision.
Other considerations can be important. Retirees are usually most active towards the beginning of retirement, especially with activities like travel and recreation. If postponing Social Security will crimp your cash flow enough to prevent you from taking advantage of your early retirement years, you may prefer to take your benefits earlier, even if it reduces your lifetime benefit.
Will my Benefits be Reduced if I Continue to Work?
If you begin to collect Social Security benefits before your full retirement age and are still working, the Social Security Association will likely withhold some or all of your benefits. However, before you go quitting your job, know that these benefits will be repaid in the form of higher monthly payments once you reach your full retirement age.
Once you reach full retirement age, the Social Security Administration will not withhold any part of your benefits, regardless of whether or not you are still working.
Essentially, working after retirement will not hurt your Social Security benefits. If you desire to work past retirement, it will only help you increase your financial security.
What Types of Benefits are Available for my Spouse?
To qualify for Social Security benefits, you must have at least 10 years of paid work.
However, a spouse who has not worked a day in their life is still eligible for benefits. Their benefits are not based on their own earnings; instead, they are based on the earnings of their spouse. Spousal benefit is calculated as 50% of the income your spouse earned. In situations where both spouses work, each can expect to collect the higher of either their own workers’ benefit or their spousal benefit.
Additionally, Social Security can provide benefits to a widowed spouse. If the deceased spouse’s benefit was higher than the surviving spouse’s benefit, he/she can switch to the full benefit of their deceased spouse.
Understanding the different types of benefits becomes important when deciding when and how to collect Social Security benefits. Every couple and family is different, and each unique circumstance calls for expert advice. Individual needs such as health issues, income, and lifestyle create specific situations that call for personalized strategy.
Meet with a Financial Advisor
Although the principles discussed above provide greater direction in maximizing your social security benefits, they serve only as a starting point in understanding this topic. Also, know that SSA employees are forbidden from giving strategic advice about receiving your benefit. So, as you prepare for retirement, be sure to meet with a financial advisor. An advisor will examine your financial situation and evaluate how you can maximize your Social Security benefits.
At IMA Financial Services, we are fee-only financial consultants specialized in helping the physicians and surgeons of Idaho meet their financial goals. Find out more about how a dedicated financial advocate can improve your long-term financial outcomes and relieve your financial stress at imafs.org.
* https://www.fool.com/retirement/2018/05/18/we-still-dont-understand-social-security-and-a-new.aspx
