Social Security – it’s not as simple as you think
Simplifying social security starts with understanding the basics.
It seems social security should be a simple topic. One pays into the system while they work and receives benefits upon retirement. Well, it is not that simple and in fact that’s a good thing because everyone paying into the system is unique and how to maximize the benefit is therefore unique to each individual and couple. Understanding some of the basics on how social security works may help build some clarity
- Everyone is eligible to receive social security benefits if they have been gainfully employed for 40 quarters (10 years). (Non-working spouses receive 50% of the working spouses benefit.)
- Social security can be claimed as early as 62 but your benefit is permanently reduced. For example, if you are born after 1960 your benefit is reduced by 30% if you claim at 62.
- Every year past your full retirement age that you don’t file, your benefit will increase by 8% up to age 70.
- Full retirement age is 67 if you are born in 1960 or after. If you born in the 1950s, your full retirement age is between 66 and 67 depending upon the month you were born.
- Depending upon your income, a portion of your social security benefit may be taxed. The first 15% of everyone’s benefit is not taxed.
- The estimated average benefit in 2021 is $1,543/month for someone at full retirement age.*
The decision of when to claim seems like it should be a simple choice but to maximize your benefit consider a few important factors;
- Your life expectancy.
- Your current portfolio of assets – would it be optimal to use your current assets and let your social security benefit grow?
- When will you fully retire? If you file before your full retirement age and you continue to earn income, your benefit may be reduced.
- What other sources of retirement income are available to you?
If you are married, there are a few other factors to consider:
- Age difference between spouses.
- Difference in the benefit amounts.
To help simplify your social security strategy, start by getting an estimate of your benefits at SSA.gov. Then contact your financial advisor who can help you develop an appropriate retirement income strategy based on your individual circumstances.
* Source: AARP
