Let’s jump right in — when you start taking Social Security is a decision you have to make and the decision will impact your monthly budget in retirement. The full retirement age is currently set at 67 by the Social Security Administration, but you have three options when it comes to the timing of collecting your Social Security benefit:
- Collect at the full retirement age of 67 and receive your full primary insurance amount each month.
- Collect early, between the ages of 62 and 66, but know that your monthly payment will be permanently reduced.
- Delay collecting to a time between the ages of 67 and one month and age 70. Delaying comes with the reward of a monthly payment greater than your full primary insurance amount mentioned in option 1 — increasing each month you delay up to age 70.
There are pros and cons to each option, so when should you start collecting Social Security? Your financial needs, retirement date, longevity expectations, and marital status are all factors that may impact your decision on when to collect Social Security.
1. Financial Needs and Lifestyle Goals
At Foundation Wealth Management, we understand that financial needs and lifestyle goals play a significant role in determining when to collect Social Security benefits.
If you have immediate financial needs, such as covering medical expenses or supporting dependents, collecting Social Security before the age of 67 may provide necessary income relief.
On the contrary, you may have other income streams covering your current monthly budget. In this case, you may choose to delay collecting Social Security in exchange for a higher monthly payment later that can fund travel or hobbies or provide for your day-to-day needs as other income streams diminish. It’s important to weigh these factors carefully, as they can directly impact the quality and comfort of your retirement years.
2. Longevity Expectations and Health
As we age, our family’s health history and personal health are factors we can’t ignore when making decisions about our future. Those with a longer life expectancy may choose to delay collecting Social Security if they are able, financially. Whereas someone with health concerns may choose to collect earlier to help cover healthcare costs and to ensure they receive their earned benefit while having a bit more of a present mindset.
There is no crystal ball, and factoring in longevity expectations is very personal. There isn’t a right or wrong answer; you are encouraged to assess a variety of factors when making Social Security-related decisions.
3. Social Security and the Impact of Marital Status
If you’re married, there are strategies you want to be aware of to maximize your Social Security benefits. Spousal benefits commonly come into play when one spouse’s primary insurance amount is more than double the other because of wage differences or the number of years in the workforce.
Those collecting spousal benefits can expect to receive up to half of the amount of the spouse’s monthly benefit. Meaning, if your spouse’s Social Security payment is $2,000, the max you could receive in spousal benefits would be $1,000 per month. Collecting spousal benefits does not have any impact on the other person’s benefits. Nobody’s benefits are reduced when spousal benefits are paid out.
Spousal benefits also come into play after a divorce if the marriage lasted a minimum of ten years. Because there are a number of other factors that can come into play in these circumstances beyond simply collecting your own benefit, connect with a Social Security expert or financial advisor for clarity regarding benefits you may be entitled to.
4. Impact on Other Income Sources
Through our retirement planning process, we emphasize the importance of coordinating Social Security with other income sources. After all, Social Security is just one income stream and many retirees will have investment account withdrawals, part-time work, pensions, or other income streams — balancing them all is no easy feat.
For example, consider someone who receives a modest pension and draws income from investments. By delaying Social Security until full retirement age or later, they’re making the conscious decision to further optimize their benefit, providing them with a larger monthly payment amount for later years. This strategy allows them to enjoy retirement now while maintaining peace of mind about the income stream that will be waiting for them in the future.
Consulting With a Financial Advisor When It Comes to Social Security
While we’ve outlined a few examples of what collecting Social Security benefits on varying timelines can look like, we likely haven’t covered your exact scenario. We encourage all nearing retirement to brush up on Social Security basics; going into retirement armed with knowledge is a great way to help ensure you’re making financially sound decisions. To learn more about withdrawal strategies and how Social Security fits into your retirement plan — schedule a meeting with one of our Financial Advisors today.
About Foundation Wealth Management
Foundation Wealth Management is a CPA-led organization, that provides financial planning services and tax planning support; services and outcomes vary based on each client’s circumstances. Our team includes qualified professionals, such as CPAs and CFP®s, who are integral to our service offerings. Our team includes 3 Certified Financial Planners: Burt Hutchinson, CPA, CFP®, Paul LaViola, CFP®, and Stephen McDade, CFP®.
As Fee-Only planners, we are compensated directly by clients rather than through commissions from brokerage or insurance products, which we believe helps align our services with client goals.
Sources:
- https://www.ssa.gov/oact/quickcalc/spouse.html
Disclosure Statement:
This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax, or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice. All investments are subject to risk, including the possible loss of principal.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, Past performance is not a guarantee of future results.
