One of the most common questions we answer in retirement planning is the one above, which helps people decide when is the best time to draw Social Security income.
This choice it can be even more difficult for women who are widowed or divorced and who expect to receive Social Security based on their former spouse’s benefit.
Starting Social Security income early is often seen as a smart way to protect your IRA savings, but is it always that simple?
The answer to the above question is a very important one that will have financial implications for the rest of your life. Let’s explore some key considerations to help you develop a financial strategy tailored to your unique circumstances.
How does time affect Social Security benefits?
For most people, Social Security income won’t cover all of their retirement expenses, so the rest of the money you’ll need to pay for retirement needs to come from other sources, such as savings and retirement investments Social Security income to work together to meet your needs for the rest of your lives.
These two elements work together to create your wholeness retirement income strategy.
How should you determine the best time to start your Social Security income?
But how should you bring your SS income forward? The answer is that it depends on your specific situation. You can start receiving your Social Security benefits at age 62, but it comes at a significantly reduced rate compared to deferring these payments in your past full retirement age (FRA)which, for the majority, will be at the age of 66-67, then that income will be to continue grow up to 70 years old.
For this reason, deferral is often the preferred choice.Every year you wait, your income benefit increases by about 8%, which, if you live relatively long, can really add up.
We know that not everyone has the means to delay their Social Security income until age 70. However, it’s still helpful to consider your short-term and long-term Social Security income sooner rather than later.
Social Security’s tipping point
An optimized retirement income strategy is where you can experience it Highest lifetime SS benefit. Here it is drop point enters the game. What is the tipping point?Here is a hypothetical situation to answer this question.
For example, life expectancy is 82 years
Let’s say you’re approaching age 62 and wondering when to start your SS benefits. At age 62, your SS benefit will be $2,300 a month , your monthly allowance will be $2950.So the monthly income amount is one factor.
Now the other factor to consider regarding the tipping point is your life expectancy. Let’s say your life expectancy is 82. Now some quick math will tell us when your tipping point will be and therefore what strategy SS will suggest. the highest benefit of life.
● If SS was selected at the age of 62. 384,000 USD Lifetime SS Income (12 months*20 years remaining life expectancy*$1,600 monthly SS benefit at age 62)
● If SS is selected in FRA (67): $414,000 Lifetime SS Income (12 months*15 years remaining life expectancy*$2,300 monthly SS benefit at age 67)
● If SS was selected at the latest at enrollment age (70): $424,800 Lifetime SS Income (12 months*12 years remaining life expectancy*$2,950 monthly SS benefit at age 70)
For example, life expectancy is 77 years
Here we can see that in this situation, to get the maximum lifetime benefit from Social Security, delaying until age 70 is the preferred choice Does this affect your lifetime benefit amount? The same math reveals.
● If SS was selected at the age of 62. 288,000 dollars SS lifetime income
● If SS is selected in FRA (67): 276,000 USD SS lifetime income
● If SS was selected at the latest at enrollment age (70): 247,800 dollars SS lifetime income
By simply reducing a person’s life expectancy by 5 years, we see a very different result in lifetime Social Security income. the strategy that will bring you the most money over your lifetime will be to choose Social Security closer to age 62.
This scenario shows that the highest per month amount and highest during life The amount of Social Security income is often two very different things. If you’re interested in keeping as much of your own hard-earned IRA (or other) savings and investments as possible, and if you rely on some of those savings during your retirement life as well, the strategy: that’s best for you probably involves figuring out how to maximize your lifetime Social Security benefits.
How Personal Factors Affect Social Security Timing
As we can see above, the drop point is extremely important to your SS timeline. However, it is also based on an unknown: your lifespan. Therefore, an important question to consider is how gauge where your tipping point is in your life This is where personal factors come in. Here are some personal factors to consider:
Health
Do your habits and family health history favor longevity?If so, you are more likely to have a longer life expectancy, and therefore delaying Social Security income may be a wiser lifestyle choice , family history or other health issues are a serious concern, choosing these benefits earlier may make more sense for you.
Retirement lifestyle
What are your personal goals and plans for retirement? Do they include more spending in your earlier retirement years, perhaps for travel or other hobbies? If so, you might just choose to take Social Security earlier However, with a lower monthly SS benefit and faster drain on your retirement savings, you may have to make drastic lifestyle changes in your later retirement years to compensate for these higher high costs and low lifetime SS income.
Marital status
If you’re married and the higher earner in the family, deferring Social Security income can increase the survivor benefit your spouse would receive if you died. for example, a pension or a small portion of earned income.
Carefully considering these factors as they apply to your personal circumstances as well as your personal preferences can help you make an informed decision.
Social Security – A cog in a bigger machine
By making a smart Social Security decision based on your personal circumstances, you’ll position yourself to maximize your lifetime income benefit and thus enjoy an optimized Social Security strategy.
This article details just one of the factors to consider as it relates to choosing Social Security: timing. However, there are other factors to consider, such as how Social Security income is combined with an IRA. Withdrawals will affect your retirement taxation. That’s why an optimized SS strategy is just one element of a larger strategy. This larger strategy is what makes up your pension plan.
If you want to figure out your optimized Social Security strategy and how it best fits into your retirement plan, CLICK HERE speak to one of our experienced advisors We’ll review your financial situation and provide clear, tailored guidance on whether deferring SS or taking it early is the best choice based on your financial position, age and personal goals.
Let’s talk.
At what age did you apply for Social Security? If you haven’t already, at what age do you expect to claim your benefits? What other questions do you have about Social Security?
