5 Things Retirees Should Know About Social Security

Social Security

provides an

important source

of guaranteed

income for most

Americans

Choosing the right claiming strategy is even more important under new Social Security regulations.

For most Americans, Social Security will provide a significant portion of their income in retirement. According to Social Security Administration (SSA) statistics, Social Security benefits account for about 34 percent of retirement income for the average American.[i] One of the biggest mistakes today’s retirees can make is to underestimate the importance of Social Security in their retirement strategies.

1. Your Age Affects the Benefit You Will Receive

The earliest age at which you can file for Social Security (unless you qualify for disability) is 62, but you won’t be able to collect your full benefit then. Instead, the SSA reduces your benefits by 25 percent if your full retirement age (FRA) is 66 or by 30 percent if it’s 67. So, if your full monthly benefit at age 66 were $1,000, you’d only receive $750 per month if you started collecting at age 62. That reduction in benefits will be permanent.

Many Americans are forced to file for benefits early for financial reasons, which can cost them dearly in lost income. If you can afford to wait until your FRA, you’ll be eligible for 100 percent of your Social Security benefit. You are also restricted on income earnings without penalties if you file before FRA. If you can afford to wait even longer, your benefit will increase by up to 8 percent every year until age 70, permanently.

2. Even under the New Social Security System, It May Make Financial Sense for at Least One Member of a Couple to Delay Claiming Benefits Until Age 70.

There is no perfect time to file for benefits, but choosing the right claiming strategy can radically affect how much you can collect over your lifetime.

If either you or your spouse expect to live past the age of 80, you’re generally better off waiting to claim as long as possible to receive a larger benefit. However, if your health isn’t good or you need the income, you might want to consider claiming Social Security benefits early.

3. Remember: Social Security Benefits Are Taxable!

Unfortunately, retirement doesn’t mean retiring your worries about taxes. If you collect substantial income from sources like wages, investment income, rental income, or any source that you report on your tax return, you will very likely owe taxes on your Social Security benefits.

However, there are strategies that may help you maximize your income while reducing taxes. If you can take income from Roth IRAs, non-taxable pensions and annuities, or inheritances and gifts, this will help with Social Security taxation. This is one reason many people are opting to do Roth IRA conversions in years that their taxable income is reduced or in a lower tax bracket.

4. Married? Don’t Forget about Spousal and Survivor Benefits

Married couples need to think about how their Social Security claiming strategies will affect their spouse’s benefits and income in retirement. This issue is especially important when one spouse is significantly older than the other or earned more during a career. Many couples prioritize maximizing a survivor benefit for a younger spouse when developing a Social Security claiming strategy.

Bottom line: the longer you wait to collect Social Security, the more your spouse will be able to claim as a widow or widower.

5. Paying Attention to Social Security Is More Important Than Ever under New Rules

New regulations kicked in May of 2016 and will mean that many retirees will lose access to some advanced strategies, such as “file and suspend” and “restricted applications”. Married couples are still able to take advantage of other advanced claiming strategies such as delaying one spouse’s benefit to accrue extra credits while the other claims a personal benefit.

No strategy can be right for everyone, and it’s important to consider your entire financial picture when making decisions about Social Security.

If you’d like a complimentary second opinion for your financial planning, please reach out to Advanced Wealth Strategies. Feel free to call or text (704) 765-3653 or email contact@PlanWithAWS.com. Their office is conveniently located at 19520 W. Catawba Ave, Suite 313 in Cornelius, NC. As fiduciaries, their independent firm will put your best interests as priority.

[i] “Fast Facts and Figures about Social Security, 2015.” www.SSA.gov