Maximize Social Security | Stewardship Concepts Financial Advisors

Overview

Deciding when to take Social Security is complicated. But taking the time to research and develop a strategy is essential. A plan can save you lots of money and increase your chances for a successful retirement. Strategizing with social security starts with evaluating what benefit each spouse is eligible for and other sources of income. The strategies discussed in this blog are general Social Security strategies and can't apply to all situations. Before deciding, please consult a professional like one of our Spokane financial advisors on the best method.

What is Social Security

Social Security is a federal government program that individuals pay into their entire working life. When someone applies for benefits, typically at retirement, they receive a monthly income that increases with inflation. This income isn't supposed to support your retirement income but supplement a portion fully.

The concern

Many worry that Social Security won't be around for much longer. The program's funds have been used for other government spending and are only sustainable if changes are made. The program will continue for many years because of many easy solutions. Increasing the taxes that Social Security collects from each person, for example. Because so many people now rely on Social Security, it is impossible to take away. So far, it's a problem that nobody is fixing. The longer we wait to solve this issue, the more painful solution will be.

When can you start Social Security?

The earliest someone can apply for Social Security is age 62 (unless your spouse passed away, you could take it at age 60). Depending on what year you were born will determine your full retirement age. As time has passed, the full retirement age has increased because people live longer. To find out your full retirement age, you can check your social security statement on Social Security's Website. The latest to start Social Security is age 70.

Basic strategy concept

Taking Social Security at the youngest age permanently reduces the monthly benefit by 25%-30%. The sooner you start, the less you receive. Delaying Social Security past the full retirement age increases the monthly benefit by 8% annually.

Non-working spouse strategy

A general rule for a nonworking spouse is to take social security by full retirement because they don't share in the benefit of an increase for delaying social security after full retirement age. Typically for stay-at-home spouses, there isn't a sizeable social security benefit because the benefit depends on how much the amount paid into the program. But a unique advantage for the nonworking spouse is to give up their benefit for the ability to receive 50% of the other spouse's full retirement social security benefit.

Working spouse strategy

A common strategy for married individuals with a nonworking spouse is to have the working spouse delay their benefits. If the working spouse dies, the nonworking spouse will get the working spouse's increased benefit. This strategy is especially effective if the working spouse has a source of income that will stop at their death, such as a pension. In many cases, taking a reduced pension benefit for 100% survivorship benefit will increase your chances for success in retirement. But consult your Spokane financial advisor to see if that's your right strategy.

Survivor benefits

When a spouse dies, the surviving spouse gets only to keep the larger of the two benefits. To ensure the safety and longevity of the surviving spouse, delay the more significant Social Security benefit.

Don't need the income

If you don't need the income for retirement and aren't working, I suggest clients start taking social security. None of your social security benefits will pass as an inheritance. Nothing in life is certain, and taking social security will reduce the amount you must take from your investments that will eventually pass on to your kids.

Divorce

In the case of divorce, a divorced spouse is eligible for benefits based on their former spouse's earning history if you were married for at least ten years, it wasn't in the last two years, and you are unmarried.

Other tips

Unmarried individuals married for at least ten years are eligible for the spousal benefit based on their ex-spouse. But to take advantage of the 50% benefit, the ex-spouse must already claim their benefit.

A general rule for everyone is to delay taking social security while you work. Social security benefits could be greatly reduced if you work before full retirement age. For example, in 2022, benefits will be reduced by $1 for every $2 you earn over $19,560.

Another general rule is to delay taking social security if you have a large taxable event coming up. Social security may be taxed up to 85%, depending on your taxable income.

A key consideration is both spouses' longevity. The longer you live, the better it is to delay social security. Calculating your break-even amount will help you determine whether you should wait. This involves calculating the number of years it will take for the total benefit from delaying social security to catch up with the total benefit received from the earlier and reduced benefit.

When planning for retirement income, Women typically live longer than men. Remember, as you age, you have fewer options to return to the workforce if your plan fails. When planning, ensure the surviving spouse isn't left with a significant drop in income.

In conclusion

Deciding when to take Social Security is complicated. But taking the time to research and develop a strategy is essential because developing a plan could save you money and increase your chance for a successful retirement. Schedule a call with our Spokane advisor to see how you can create a financial plan.

About the Author

Noah Schwab CFP® is a financial advisor in Spokane, Washington who specializes in helping Spokane small business owners.