By Ash Toumayants
We’ve all heard of Social Security and some of us may have even gone the extra mile to log in to our account and get an estimate of our future benefits. But have you gone even further and looked at your whole retirement picture to figure out how Social Security will affect your future retirement?
Today, Social Security benefits can make up an average of 40% of a typical retiree’s income. (1) This is no small drop in the bucket when it comes to your retirement income, which means Social Security benefits and claiming strategies need to integrate into your financial plan.
Will Social Security Make An Impact?
While the average Social Security retirement benefit payment is about $1,460 per month, (2) the maximum benefit at full retirement age for 2019 is $2,861 per month. For those who wait until age 70 to start receiving payments, the maximum monthly payment for 2019 is $3,770. (3)
As Social Security payments increase with cost-of-living adjustments (COLA), the monthly benefit will continue to escalate throughout your retirement. Even if you don’t require Social Security payments to live on during retirement, the benefits can be invested or gifted to your heirs.
For someone who has reached full retirement age with an average life expectancy, the total maximum value of lifetime Social Security payments is estimated to be about $612,000 for men and $695,000 for women. (4) It’s vital to plan ahead to maximize your total lifetime benefit and aim to use the asset as part of your overall financial plan.
Crucial Claiming Decisions
There are two critical claiming decisions you need to consider to optimize your total lifetime benefit. First, you’ll need to decide when to start receiving benefits. Second, you’ll need to determine how to claim spousal benefits to maximize the entire lifetime payments for two spouses.
When To Claim Benefits
Social Security benefits can be claimed anytime between ages 62 and 70. However, the timing of when you choose to collect these benefits will impact the amount of benefit you receive. If you choose or are forced into an early retirement, you can begin receiving Social Security benefits as soon as age 62. However, if you file to receive benefits any time before reaching your full retirement age, you will receive a reduced benefit.
If you wait until you reach full retirement age to begin collecting your Social Security benefits, you will receive your full primary insurance amount, which is the full benefit that you have earned. If you don’t need your Social Security benefit at full retirement age, you can delay receiving your benefits. For each year that you delay, your benefit will increase by 8%, for a maximum possible increase of 32%. Your benefit will only increase until you begin receiving it, or you turn 70, whichever happens first.
Deciding how and when to claim spousal benefits may depend on your overall financial strategy and individual situation. In general, the lower-earning spouse may choose to begin collecting benefits early while the higher-earning spouse plans to wait as long as possible. That way, a couple can make use of the lower benefit while maximizing the higher benefit.
If the husband has a larger benefit, the woman may claim first. Because women tend to live longer than men, this strategy can not only maximize the husband’s retirement benefit for use while he is alive but also maximize the wife’s survivor benefit when he passes away.
Social Security And Your Retirement Plan
You’ll likely rely on a retirement income generated from several different sources, including Social Security, employer-sponsored retirement plans, personal retirement plans, and other savings and investment programs. It’s important to consider each income source and strategize ways to maximize it.
If you want to see how Social Security impacts your financial plan and determine a claiming strategy that is ideal for you, schedule a Social Security review meeting today by calling 814-325-9806 or emailing [email protected]. Or, if you prefer, you can now quickly and easily click here to request a meeting using our online system! Also, be sure to check out our 2019 Social Security Benefit Guide for more in-depth Social Security details.
Ash Toumayants is a financial advisor and the founder of Strong Tower Associates. For over a decade, he has helped hardworking people across Central Pennsylvania prepare for retirement. Fueled by a passion for helping people see through the veil of confusion that shrouds the financial world, his goal is to educate his clients so they can make more sound choices regarding their financial future. A Penn State graduate, he currently lives in State College with his lovely wife, Noelle, and their four adorable children. Learn more by connecting with Ash on LinkedIn or emailing [email protected].
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(4) Assuming life expectancy of 84 years for men and 86.5 years for women (https://www.ssa.gov/planners/lifeexpectancy.html) and a full retirement age of 66 years and 2 months.