By Kyle Ray, CFP®
On January 31, 1940 Miss Ida May Fuller received the very first Social Security payment. Since then, social security benefits have become a major part of retirement income for most retirees in the U.S. today. As a result, maximizing social security benefits is paramount to retirement income planning, and is accomplished by strategically deciding when and how to claim the benefit. These decisions are based on a myriad of factors including financial need, longevity, working status, taxes, and other retirement income opportunities. Social security strategies are unique to individuals and their specific situation. Incorrect decision making can adversely impact lifetime benefit amounts, which can total more than $1 million of income for some people.1
To Wait or Not To Wait
According to a study from Boston College, 90% of Americans decide to start taking Social Security early. By age 62, the earliest age you can collect worker benefits, 42% of men and 48% of women have started benefits.2 The reason for taking the benefit early is typically due to financial need or because they fear that Social Security is in financial jeopardy. However, in most situations, it is better to delay taking Social Security. This deferral can allow individuals and married couples to receive substantially higher payments over a person’s lifetime. For people who have an expected lifespan of 83 or more years, deferring Social Security benefits until age 70 can increase the lifetime benefit by as much as 32%.2
Did You Know?
In addition to the considerations above, collecting social security while still working can complicate decisions. For example, if you start collecting benefits at age 62 but continue to work, your benefit will be reduced by as much as a dollar for every two dollars of earned income above roughly $17,000.3 This creates a reduction of benefit payment in the following year. If you put off taking social security benefits until full retirement, typically between ages 66 and 67, while drawing down from retirement accounts, you can further reduce your benefit. Working with a qualified professional can help you avoid these traps and strategize the most efficient plan available for the given situation.
The Silent Financial Killer
Social Security is adjusted based upon the Consumer Price Index (CPI), creating the illusion that inflation is accounted for in annual Cost of Living Adjustments. However, these adjustments do not properly cover many of the goods and services that comprise the majority of senior expenses, such as food, fuel, and medical care. Over time, all three of these areas have seen inflationary rates far greater than that covered by CPI. Don’t let inflation slowly erode your retirement income. A professional wealth manager can determine true retirement needs, including inflationary risk mitigation, in order to ensure that your retirement income is keeping pace with these rapidly inflating expenses.
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Sources & Disclosures
1. $1 Million based on married couples with a joint filing status on their tax returns
2. Boston College, Center for Retirement Research, May 2015, Number 15-8
3. Social Security Administration, 2016
The content of this article is for illustrative purposes which are based on 2017 figures, and should not be construed as investment advice. Actual situations will vary.
Lighthouse Financial is a registered investment advisor with the S.E.C.