Social Security (SS) retirement benefits are a vital component of retirement income for many people. It consists of multiple benefits, including disability, survivor, and retirement benefits, and is an indispensable part of many individuals' financial plans. Knowing how to optimize SS benefits can be advantageous as one works toward a confident retirement.
Deciding when to start receiving Social Security benefits is essential. There are three options: early retirement, full retirement age, or delaying benefits. Each offers a different perspective depending on individual circumstances, making it vital to understand each option thoroughly.
Early retirement
Opting for early retirement benefits involves starting to collect benefits at age 62. Doing so provides immediate income but results in a managed monthly benefit amount. This reduction could range from a modest 25% to a drastic 32.5% cut, depending on your full retirement age defined by the Social Security Administration based on your birth year.[i]
While this option may be appropriate for those who need immediate income or have a shorter life expectancy, it might not be the most optimal strategy for those who live long lives. To make an appropriate decision, assess your financial needs, health status, and family longevity history.
Full retirement age
Waiting until the full retirement age provides 100% of SS retirement benefits. Those who anticipate a longer lifespan and can manage without the extra income for a few years may benefit from waiting until full retirement age. Waiting also enables more significant spousal benefits and allows room for continued income and benefits growth from staying employed for a more extended period.
Delaying benefits
An alternative strategy is delaying benefits past the full retirement age, which allows benefits to grow by a certain percentage until age 70. SS benefits may increase by approximately 8% annually, depending on birth year.[ii]
Individuals who postpone drawing their benefits beyond their full retirement age earn credits, yielding a higher lifetime income for retirees living well into their late 80s and beyond. This strategy may be appropriate for those with prospects of good health and financial independence during their later years.
Other considerations
Birth year
Social Security continues to revise benefits based on birth year for those not taking retirement benefits. This revision is due to the Social Security Trust Fund facing depletion in 2033.[iii] Therefore, it is vital for those born in the 1960s and after to remain informed and work with a financial professional to continue assessing their benefits situation.
Taxes
Another vital factor to consider when optimizing social security benefits is taxes. Suppose one continues to earn additional income (such as wages, self-employment, interest, dividends, and other taxable income reported on a tax return) besides SS benefits. In that case, taxes may apply to some of the benefits. Therefore, adequate income and tax planning may help manage this potential disadvantage.
How to boost Social Security retirement benefits
There are numerous ways to boost benefits in preparation for the Social Security retirement age:
- Remain in the workforce
- Work for 35 years[iv]
- Delay benefits until the full retirement age[v]
- Monitor one’s Social Security statement for errors
- Collect spousal benefits
- Temporary halt on benefits
In conclusion, there is no one-size-fits-all approach to optimizing Social Security benefits. Assessing individual needs, lifespan, health, and financial situation is essential to making an informed decision. Remember to seek guidance from a financial professional to fine-tune your Social Security approach and remember that patience can pay off.
Important Disclosures:
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
LPL Tracking #1064176
Sources:
[i]Social Security at 62 | Fidelity
[iii]The Social Security tsunami: Payments could be cut by 23%, doubling the poverty rate for America's seniors | Fortune
[iv]Social Security Benefit Amounts
[v]Benefits Planner: Retirement | Delayed Retirement Credits | SSA
