Social Security

What should you know before starting Social Security?

Social Security is an entitlement promised by the federal government if you or your spouse worked and paid enough FICA withholdings into the system to qualify for benefits. The amount of benefit paid is based upon your lifetime earnings. In turn, your Social Security benefits are paid for life, and in some cases, may be paid to certain beneficiaries. In addition, your benefits are linked to the consumer price index for Urban Wage Earners and Clerical Workers (CPI-W) and adjusted annually for inflation. For these reasons, the decisions you make regarding Social Security will have an impact throughout your lifetime and possibly the remainder of a loved one’s lifetime.   

At what age should I start taking my Social Security benefits?

 This is one of the most frequently asked questions, and there are several factors that need to be considered BEFORE you make a decision. Your normal retirement age is determined by the year in which you were born. If you start your benefits at age 62, the earliest age allowed, you benefit will be adjusted to 75% of your normal retirement age benefit amount. Conversely, each year beyond age 66 you defer taking benefits, your benefit amount is adjusted to increase 8% per year to a maximum of 132% at age 70. Also, starting benefits prior to your normal retirement age significantly reduces the amount of both “Spousal” and “Survivor” benefits paid to a loved one. The table in figure 1 illustrates the impact of these adjustments. 

Wouldn’t I be better off starting benefits as soon as I am eligible?

Conventional thinking suggests this, and if you are in poor health or spousal benefits aren’t a concern, it may be in your best interest to do so. However, “break even analysis” clearly shows starting later with a higher benefit amount is better for someone with a normal life expectancy. And when you factor in the importance of Spousal and Survivor benefits to a loved one, the impact of the cost-of-living-adjustments, and how social security benefits are taxed, the differences can be quite significant. Other factors you should consider include:

• How long will you live?
• Do you NEED the additional income TODAY to meet your expenses?
• Will you continue working beyond the date you start receiving benefits?
• What other sources of income will you have available, how much and at what age?
• Would deferring Social Security and using a portion of your other savings now enable you to actually have more after-tax income later, when you may need it the most?

The decision on when to start taking Social Security benefits shouldn’t be made in a vacuum, but as part of your overall financial situation.

Dr. Shelby Smith’s “The Guide to Social Security – Higher Lifetime Benefits and Lower Lifetime Taxes” makes several key points on the importance of careful Social Security income planning and how you potentially could realize up to 20% more after-tax income during retirement. This is particularly apropos when you consider the escalating cost of medical and long-term care, and that many of us may need more of these services as we age. If you'd like to receive a free copy of Dr. Smith's guide on Social Security income planning, simply click here and register.

A key advantage of our planning process is our ability to illustrate how starting Social Security benefits early vs. at normal retirement age vs. deferring until a later will impact your income as well as spousal and survivor benefits. Our Social Security Timing software will clearly illustrate the optimal age for you (and spouse) to start your benefits. The differences can be substantial, particularly for married couples.  

If you would like to schedule a complimentary appointment to discuss Social Security planning or ask us a question on any of the above concepts, please select the appropriate link below:

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