Strategies for Social Security Planning - Episode 30
The first big thing to remember is you only get to make your Social Security decision once. After that, you are mostly stuck with your decision for the rest of your life.
Today I am going to talk about 4 strategies to consider in your Social Security planning process plus what you can do if you are not happy with the Social Security decision you have already made.
Listen to Episode 30 Here:
You can listen online through the direct player above, or a much easier way to listen is by subscribing to the podcast through a free podcast app on your phone. The podcast is available on iTunes, Spotify, Google Podcasts, iHeartRadio, and Stitcher, and several others!
1. Plan With Your Entire Life in Mind
If you only look ahead to next year, claiming Social Security right away might look like a great option. After all, you’ll be able to take less money out of your investments, and having that income source from Social Security will make your budget look nicer.
But just because you are 62 and CAN claim Social Security benefits doesn’t mean you should. By claiming benefits too early, your benefits can be reduced by up to 30% for the rest of your life.
When you look at your entire life, you need to consider how that choice will affect you and your spouse (if applicable), especially after one of you passes away.
Social Security was designed to provide you with a source of income for the rest of your life.
2. Maximize Your TOTAL Benefit
Keep in mind, if you are married, there will be two Social Security benefits to maximize. Then, when one of you passes away, the lower of the two benefits will go away.
But what exactly does it mean to maximize your Social Security benefits?
Most times this will mean delaying Social Security benefits - until either your full retirement age of 65 to 67 (depending on when you were born) or age 70 for maximum benefits.
You can play the odds in your favor by considering how long you will likely benefit from your Social Security income.
Beginning age |
Chance of living 15 more years |
Chance of living 20 more years | |
Husband |
Age 62 in 2021 |
78% |
64% |
Wife |
Age 62 in 2021 |
85% |
73% |
Either husband or wife |
97% |
90% |
Actuaries Longevity Illustrator: https://www.longevityillustrator.org/
For example, when looking at a 62-year-old, non-smoking couple with average health, the husband has a 78% chance of living 15 more years, while the wife has an 85% chance of living 15 more years. And there is a 97% chance that either one of them will live another 15 years.
This is just an example, and you can review your own odds by going to longevityillustrator.org and answering a few questions. We will also provide a link to this resource in the show notes.
Sometimes waiting until age 70 is not the best way to maximize your benefits. If you are in your 60s and have dependent children at home, which is becoming more common with blended families, you may actually be able to maximize your benefits by claiming a dependent benefit. Or a younger spouse may be eligible for a spousal benefit.
Possible Social Security benefits include:
- Earned retirement benefits
- Survivor benefits
- Divorced survivor benefits
- Spousal benefits
- Divorced spousal benefits
- Child benefits
- And a few others
These are things you can talk about with a financial advisor who specializes in retirement income planning.
3. Don’t Always Take the SSA’s Advice at Face Value
While you would expect to get accurate information from a Social Security Administration employee, it is possible you may receive inaccurate information due to SSA employees being overworked and under-trained.
If you do get advice directly from the SSA, it would be a good idea to also consult a financial advisor who specializes in retirement planning, such as my firm, Eagle Ridge Wealth Advisors in Morton, Illinois.
4. Focus on Getting the Most Benefit for the Least OVERALL Cost
Social Security is not an investment, it’s more like an insurance policy.
By delaying benefits, your Social Security benefit increases by 8% per year up to age 70. Income annuities often promise 5-7%, and they are usually loaded with high fees.
When looking at taxes, if you decide to claim Social Security now so you can continue growing your investments, you will also have to pay federal income taxes on your retirement plan assets when you withdraw from them (unless you have previously converted your investments to a Roth IRA).
In contrast, Social Security income is not fully taxed by the federal government. Only up to 85% of Social Security income is federally taxed. And the state of Illinois does not tax retirement benefits. That includes retirement plan income and Social Security income.
To recap, here are 4 strategies to consider in your Social Security planning process.
- Plan with your entire life in mind
- Maximize your TOTAL benefit
- Don’t always take the SSA’s advice at face value
- Focus on getting the most benefit for the least OVERALL cost
What if You Made a Bad Social Security Decision?
Now that we’ve talked about what to think about before deciding to claim Social Security, what if you have already started claiming Social Security and you are not happy with your decision?
I said at the beginning of this podcast that you only get to make your Social Security decision once and that you are mostly stuck with that decision for the rest of your life. However, you do have some options.
1. You can withdraw your Social Security application.
It is possible to reverse an early claim decision if you withdraw your application within 12 months and have the cash available to pay back the benefits you have already received.
If you do this, it will be like you never claimed Social Security benefits and you can refile at a more ideal time.
2. You can suspend your Social Security benefits.
If 12 months have passed, you can voluntarily suspend your benefits without paying back what you have already earned. For every month that you suspend your benefits, you will earn a credit of 0.67%, or 8% annually until age 70.
Keep in mind, if you suspend your benefits, no one else in your family can claim benefits based on your employment record.
Bottom Line:
You definitely need to consider your lifetime tax liabilities and all possibilities when determining the best time to start receiving your Social Security benefits. And the 8% increase in what you could receive for every year you are able to wait is pretty much the best guaranteed return you can hope to receive in today’s low-rate environment. So be very mindful when making this very important retirement decision.