Choices you make about Social Security can make a big difference in your retirement income. Most people understand that the longer they wait to take benefits, the higher their monthly payment will be. However, as reported in Kiplinger’s article, “Social Security: Delay or Hit Go?,” that’s not the right answer for everyone. You’ll be able to make a better decision if you understand how Social Security rules work and by making an honest assessment of your individual situation.
Social Security 101. First, a short tutorial on Social Security benefits and how they're calculated. The federal government deems you to be at full retirement age benefit beginning at ages 65 to 67, based on when you were born. The amount of money you receive is based on an inflation-adjusted average of your 35 highest-earning years. You can begin collecting Social Security benefits as early as age 62, but your monthly benefit amount will be permanently locked in between 25 and 30% less than your full benefit amount, which depends on your current age, full retirement age and income. If you can delay taking your benefits, they’ll grow. If you delay until age 70, your monthly Social Security benefit could be about 132% of your full benefit.
Whether you’re better off waiting to get fewer years of higher income or starting earlier to get more years of lower income really depends on your individual situation. Some of the factors to consider include other income sources, your life expectancy, your spouse's benefits and your risk profile. While there's no one correct answer to the question, there are some ways of thinking about benefits that can help you to find the right answer.
Spousal Benefits. If you're married or are divorced after being married for more than 10 years and are currently unmarried, you may be eligible for spousal benefits at a maximum of 50% of your partner's full retirement age benefit.
Interest Rates. Each year you delay taking benefits "earns" you an additional 8% in Social Security income down the road, giving you a very attractive rate of return—and Social Security is guaranteed. Social Security benefits are also indexed to inflation, so when you begin receiving your checks the income should help you keep pace with the rising cost of living. Think about that fact when choosing between starting Social Security and using your investments to supplement retirement income. It’s also important to understand that your decision could affect your estate plan.
Longevity and Health. People who rely on Social Security to fund their retirement may not have the option to delay taking benefits when they retire. If your health is poor and you don’t expect to live into your 90s or even 80s, then delaying benefits may not be a priority for you.
Some of these issues are easier to grapple with than others. Generally speaking, you’ll want to consider all your circumstances from retirement income to longevity before making a final decision about Social Security benefits. Remember, these decisions can significantly impact your estate plan. To make sure you don’t miss planning opportunities, you’ll need to work with an experienced estate planning attorney, one who understands how the inevitable changes in your assets, family situation and the law will impact your estate plan. Whenever possible, work with an attorney with an ongoing client care program to ensure that as life and the law change, so can your estate plan.
For more information on the importance of an ongoing client care program, explore our website and contact us to schedule your consultation today!
Reference: Kiplinger’s (December 2016) “Social Security: Delay or Hit Go?”