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The When, Why and How: Social Security Considerations

The When, Why and How: Social Security Considerations

| August 31, 2021

Social Security recipients might be on the verge of receiving a 6.2% raise on their Social Security income payments in 2022. Did you know that the Social Security Administration evaluates the consumer price index every year, and adjustments are made the following year to Social Security recipients’ annual income benefit? The cost of living adjustment (COLA) for Social Security is based upon the average of July, August, and September consumer price index figures. According to Mary Johnson, a Social Security policy analyst, “With one-third of the data needed to calculate the COLA already in, it increasingly appears that the COLA for 2022 will be the highest-paid since 1983 when it was 7.4%.”


When should you claim Social Security?   

This is the #1 question many of our clients have. The answer depends on a multitude of factors. You are eligible to claim your Social Security benefits as early as age 62, but you will receive a reduced Social Security benefit. You are eligible to claim 100% of your Social Security benefits at your full retirement age. Depending upon when you were born, your Full Retirement Age is between 66 and 67. The latest age that you can delay collecting your Social Security benefits is age 70. If you delay your Social Security benefits beyond your full retirement age until age 70, your benefit grows by 8% each year.

Social Security is the largest source of government-guaranteed, inflation-adjusted, lifetime income you will have in retirement. When you review your Social Security statement, your benefit is stated in a monthly amount. For example, let’s assume that your statement shows your benefit at your full retirement age to be $2,698 per month, and you elect to begin benefits at your full retirement age. Assuming a 2% annual average inflation rate, this equates to $1.37 million in cumulative benefits! However, suppose you were to delay your benefits until age 70 (receiving an 8% yearly increase in benefits from your full retirement age until age 70). In that case, this equates to $1.56 million in cumulative benefits, a difference of $190,000. Imagine the amount of “bucket-list” trips you could take during your golden years with this extra income.

Why would you select one claiming strategy over another?

There are over 2700 Social Security claiming rules, resulting in over 567 different filing strategies for a married couple to consider. However, somewhere in all of those rules and regulations is one single best way for you to file to maximize benefits based upon your unique situation. Following are critical considerations in the Social Security decision making process:

What other sources of retirement income do you have?  

Suppose you are retiring and you have other sources of retirement income and or can structure income from your investment portfolio. In that case, it might make sense for you to delay your Social Security. Alternately, you may want to consider starting your Social Security early, allowing your investment portfolio to grow longer.

Are you married?

Married couples have more considerations since they can claim on their record or choose to claim on their spouse’s record (if eligible). You also want to consider your spouse’s and your survivor benefits to ensure that a surviving spouse isn’t left without enough income. Though the file and suspend loophole is gone for most retirees, there are still many advanced claiming strategies that can help you maximize your Social Security Benefits.

What are your family health history and longevity expectations?

If we all had a crystal ball and knew exactly when we would pass away, the decision to take Social Security would be easy. If we lived to our exact expected age, we would collect the same Social Security income whether you collect early or late (Social Security was designed this way). If you expect to live longer than the break-even age, you’re typically better off waiting to claim as long as possible to collect the largest benefit possible. But, of course, the exact age at which you will maximize your lifetime benefits also depends on variables like the amount of your benefit, your tax bracket, and how your retirement portfolio is performing. 

Will you work while claiming Social Security? 

Annual Earnings Limit:  If you are under your full retirement age when taking your Social Security, you must consider and understand the Annual Earnings Limit. 

Taxes: If your overall income, including Social Security, is above certain annual thresholds, more of your Social Security benefit becomes taxable.

How do you create your Social Security Strategy?

Deciding on the Social Security strategy for you requires a review of many variables. We strongly encourage you to work with a professional who can properly guide you by creating your unique Social Security Strategy. If you would like help navigating Social Security, please connect with us. We are here for you.  


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