When it comes to planning for Social Security income in retirement, the most common questions we are asked include:
- What is the best age to file for benefits?
- Are there benefits to waiting until full retirement age or age 70?
- Should I claim on my spouse’s record first?
- How can you maximize your overall benefits?
There’s no doubt about it, filing for Social Security can be daunting. We see it everyday while coaching clients through their choices, and there are several factors to consider. To complicate matters, there’s a “ton” of information – and misinformation – available to weed through in order to make an informed choice. Your benefits depend on your age, how long you’ve worked, what you earned, your marital status and the number of dependents you have. It almost seems like you have to factor in everything but your IQ!
So what are the most common “myths” about Social Security?
Myth No. 1: Social Security Won’t Be Around When You Need It
While it’s true that your contributions go to current retirees as opposed to an account reserved just for you, Social Security continues to be replenished by younger, working Americans, as well as via earned interest on its bond portfolio and income taxes charged on benefits paid to higher-income retirees. The trustees of the Social Security system have projected that any existing surplus could be depleted sometime between 2033 and 2037, if no further legislative action is taken. This could mean that future retirees may be paid some portion of their expected benefit, between 75% and 80% for example, but not “zero” like many fear.
Myth No. 2: Social Security is All You Need
Somewhat paradoxically in light of Myth No. 1, more than half of Americans expect to fund their retirement entirely with Social Security. Social Security was always intended to supplement – not replace – retirement savings. Retirees received an average of $1,341 in benefits for the month of January. Even if you live frugally, that amount likely will not be enough to account for all the variables you might encounter over a decades-long retirement. That’s why it’s important to do what you can to maximize your retirement savings for as long as possible.
Myth No. 3: File as Early as Possible
No one knows how long you will live past full retirement age, so some think you should collect as soon as you’re eligible. But that means permanently reducing benefits when the odds favor a longer lifespan for most of us. Have a qualified financial planner calculate your breakeven point to make the best decision for you and your family. Higher-earning spouses may want to delay as long as possible, not just to maximize their own benefits, but to ensure a higher payout for their widow or widower, should they predecease them. Surviving spouses are eligible for 100% of their spouse’s benefit.
Myth No. 4: File as Late as Possible
You probably think we are trying to confuse you, but the right solution really depends on your individual circumstances. For the vast majority of applicants, waiting past full retirement age to Age 70 to file for benefits can make the most sense financially, but there are conditions that warrant filing early, particularly if you need the extra income or if your health isn’t the best. On the other hand, retirees who want to have the most income during their prime years may want to file early, too.
For some clients, Social Security income can be a small percentage of their overall income plan in retirement. Still, getting it right for their particular situation can make many thousands of dollars of difference over their lifetimes. While choosing when and how to take your Social Security income is an important decision; working with a Concierge Financial Services firm to guide you on this topic may just be the best decision you make.
Stay tuned for the last three (and more surprising) myths about Social Security in Part 2 of this article next week.
Sources: ssa.gov; investopedia.com; forbes.com
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. You should discuss your specific situation with the appropriate professional.