As you approach an eligible retirement age, it is increasingly important to fine-tune your financial plan to your specific retirement situation – especially in regards to your Social Security benefits. As it stands today, middle income Americans receive, on average, 20 to 50 percent of their retirement income from Social Security. Making a wrong decision could end up costing you thousands, or in some cases, tens of thousands of dollars over the course of your retirement.
Ok, so what’s the “right decision” then? Well, of course, that depends on your personal financial situation, marital status and a host of other factors, but there are some broad principles and informative resources that can help you make the best decision for you and your family.
Before we dive in, let’s quickly review the basics. Most Americans are eligible to begin receiving Social Security benefits between the ages of 62 and 70. The age at which you are eligible to receive “full” Social Security benefits is 65, 66 or 67, depending on your date of birth. As a general rule, the longer retirees defer their benefits, the larger their monthly payments will be during retirement. Waiting just three extra years to begin drawing benefits, for example, can result in a lifetime “raise” of close to 25 percent. And waiting the 8 extra years from age 62 to age 70 can result in a 75 percent monthly increase. That’s the difference between getting a check for $1,500 every month, or a check for $2,625!
Does that mean the right decision for everyone is to wait until age 70 to begin drawing their Social Security benefits? In a word – no. If you don’t have the option of continuing to work and have no other significant sources of retirement income, you may have to begin drawing Social Security at an earlier age. Or if you have health issues that make it likely that you will not live to your full life expectancy, it may make more sense to begin receiving a smaller monthly benefit sooner. But for those not in these situations, planners are increasingly inclined to recommend putting off applying for Social Security benefits.
There’s one more important consideration you should take into account when deciding when and how to apply for Social Security benefits – your spouse. While spousal rules are complicated when it comes to Social Security benefits, the most important thing to know is that if you’re married and your spouse has reached full retirement age, he or she can receive spousal benefits while deferring his or her benefits to a later date and thereby letting those benefits grow. The law also allows for a spouse to claim a benefit equal to half of the higher wage earner’s salary if that portion exceeds his or her own benefit.
For more information on Social Security benefits and a detailed explanation of benefits not covered in this article, please check out the Social Security Handbook provided by the Social Security Administration. There’s also value in periodically checking your Social Security benefit monthly estimates, which can assist in planning. You may remember receiving this summary in the mail every year, but as of 2011, unless a person is over age 60, he or she will not receive a summary in the mail. Go to www.ssa.gov/mystatement/ and open an account to view your statement. You may also want to check out the Social Security Calculator to estimate your retirement benefits. Finally, if you’d like to better understand the role your Social Security benefits play in your overall financial plan, give me a call so that we can arrange a convenient time to discuss this crucial element of your retirement.
In the next installment of our five‐part retirement planning series, “The Retirement Game Plan,” the topic will be location, location, location. There’s a lot of information to consider when you’re planning your retirement, but have you thought about where you want to live during your golden years? From taxes, to family, to lifestyle, there are a lot of things to consider.
This article was previously printed in a First Command publication.