For many retired and near-retired individuals, Social Security benefits constitute the foundation of their future income. However, when making the transition to retirement, deciding when and how to start taking Social Security can be the most stressful part of the process. These three fundamentals can speed you on your way.
1. Don't rely on the Social Security Administration for advice
If you’ve ever perused the Google reviews for your local Social Security office, you’ll likely notice an inordinate amount of one-star reviews. Many of those complaints will concern procedural issues, but most of those reviewers are probably unaware that SSA employees are forbidden to give advice on maximizing benefits. Their frustrations are understandable, but the lesson is that US citizens need to find other sources of advice to navigate the complicated policies of Social Security. Paying for a financial professional’s advice to maximize your benefit will likely pay for itself times over.
2. It pays to wait
Many retirees are tempted to take their benefit early at age 62. In most cases, this is the worst decision that can be made with their Social Security. By taking at age 62, you accept a 30% cut from your full retirement age amount. The penalty decreases each year until you hit full retirement age (somewhere between 66 and 67, depending on your birth year). However, it can pay to wait even longer. From full retirement age until age 70, you gain an 8% increase to your benefit for each you hold off. This strategy, relative to a benefit taken at full retirement age, can pay off as early as age 80.
No strategy is on-size-fits-all because maximizing your benefit depends on a variety of factors: life expectancy, savings and cash flow, age differential between spouses, investment mix, and others. However, in general, the later you wait to take your Social Security benefit the more it will pay you over your lifetime.
3. Your spouse can qualify for benefits based on your earnings record.
When an individual qualifies for Social Security benefits, their spouse is entitled to half of their full retirement age amount. Many couples fail to capitalize on this. It’s especially common when one spouse qualifies for benefits at less than half of the full retirement age of the other spouse, but they still file for their personal benefit instead of spousal. The most common strategy to take advantage of spousal benefits is where the higher income spouse delays filing until age 70, earning the 8% annual increase. Meanwhile, the other spouse files for full spousal benefits at full retirement age.
One year after you start taking Social Security benefits, that decision is written in stone for the rest of your life. Thus, it’s vital you make the right choice from the beginning, so perform your due diligence. Don’t be afraid to ask questions and reach out for professional advice. With proper preparation, Social Security doesn’t need to be daunting.
At TrueNorth Wealth, we are fee-only retirement advisers dedicated to our clients’ goals. Find out more about how a dedicated financial advocate can improve your long-term financial outcomes and relieve your financial stress at http://www.truenorthwealth.com.