Social Security Planning
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Social Security Planning is a key component of lifestyle and retirement planning. Unfortunately, the general public and many members of the financial services industry are not educated nearly enough on the Social Security rules and laws to take full advantage of the benefits that could be awarded to them. Including Social Security Planning into your overall financial plan, especially your retirement plan and retirement income plan, could have a surprisingly beneficial effect on your nest egg.
A Guaranteed Income Source
While there is quite a bit of controversy surrounding Social Security and its anticipated changes as of late, everyone agrees that Social Security in some form will be available, especially to those 55 or older. Social Security is one guaranteed income source that everyone who has participated in the workforce for at least 40 quarters is entitled to. This will form a portion of your retirement income, so it is important to your lifestyle in retirement that you are careful to secure the highest amount you are eligible for.
Social Security Planning Strategies
There are many varying strategies for Social Security Planning that may be appropriate for some but are not appropriate for others. For example, “File & Suspend” and the “Restricted Application” strategies may be appropriate for you if you are married. Often not enough awareness or emphasis is placed on delaying claiming the primary breadwinner’s Social Security benefits until a later age. The reason for its importance is because the higher benefit amount will be the amount received by the surviving spouse. Delaying claiming this benefit amount causes it to increase 8% each year in addition to cost of living adjustments from your full retirement age.
Full Retirement Age Based on Year of Birth
Year of Birth | Age |
1937 and prior | 65 |
1938 | 65 and 2 months |
1939 | 65 and 4 months |
1940 | 65 and 6 months |
1941 | 65 and 8 months |
1942 | 65 and 10 months |
1943-54 | 66 |
1955 | 66 and 2 months |
1956 | 66 and 4 months |
1957 | 66 and 6 months |
1958 | 66 and 8 months |
1959 | 66 and 10 months |
1960 and later | 67 |
Notes:
1. Persons born on January 1 of any year should refer to the normal retirement age for the previous year.
2. For the purpose of determining benefit reductions for early retirement, widows and widowers whose entitlement is based on having attained age 60 should add 2 years to the year of birth shown in the table.
Source: Social Security Administration
The difference between the benefit amount you will receive at full retirement age and age 70 is significant. It is for this reason, combined with the fact that Social Security:
- Is guaranteed
- Receives special tax treatment
- Includes COLAs (Cost of Living Adjustments)
that many choose to draw down on their retirement assets rather than claiming their benefits at full retirement age. This strategy, coined “buying a social security annuity,” is becoming a popular strategy given the uncertainty of the markets and the increasingly difficult challenge of protecting purchasing power in retirement.
It is important to keep in mind, however, that these strategies may not be right for you. It may be more beneficial for you to claim your benefits at full retirement age or even earlier at a reduced rate if your financial situation requires it. Those who have a decreased life expectancy may not find value in delaying their benefits especially if they are single; the loss of those additional years may not be able to be recovered despite the 8% yearly increase. To see a breakdown of how much you can claim prior to your full retirement age, visit the Social Security Administration’s Full Retirement Age calculator here: http://www.socialsecurity.gov/pubs/ageincrease.htm.
When choosing a financial professional, be sure to choose one who is fully educated on the ins and outs of Social Security Planning, and is willing and able to place a high value on its inclusion in your overall financial strategy. Without this, you could be missing out on a potentially significant benefit amount that would otherwise be designated for your use.
Education Resources
The following articles include some useful information and methods that may help you get the most out of your Social Security benefit amount. Fully exploring the different rules and tactics for Social Security Planning and how they impact your overall financial and retirement strategy is still the best method to get the most out of your retirement. These articles, however, should help you to start thinking about the importance of Social Security Planning and help kick-start the conversation with your financial professional.
Social Security
- NASI.org- Social Security
- Social Security: It Pays to Wait
- Social Security: Just the Facts
- When Collecting Social Security, It Pays To Be Married
- The Ins and Outs of Tapping Social Security Benefits
- When Should You Apply for Social Security?
- Continuing a Conversation on Social Security
- Quiz: How Well Do You Know Social Security?
- Understanding Social Security Survivor Benefits
- The Social Security Catch-22
- Claiming Social Security After Divorce
- Investing Social Security Benefits Not Worth The Risk
NOTE: The following links will take you so the Social Security Administration website (SSA.gov) and away from LifeLongRetirementCorp.com. LifeLong Retirement Corp is not affiliated with the Social Security Administration or the U.S. Government. Any information provided to the following sites will not be made available to LifeLong Retirement Corp.
Medicare