As more Americans enter retirement or semi-retirement without a lifelong income stream from a corporate pension, it can’t hurt to think about how you can maximize your social security – or at least not ruin your benefit!
According to Right Capital financial planning software, there are at least 567 possible claiming strategies for a married couple. You can receive your benefits as early as age 62 but what if you don’t need that income? It’s a great question. Read on to find out more about this and other questions you may have about social security retirement income. It never hurts to prepare.
Do you have a strategy for Social Security? If you don’t, there’s still time!
There are many numerous factors to consider when it comes to claiming your Social Security. Let’s say you are 62 and have sufficient income from various sources but want to start receiving your social security benefit, to invest it in other places. Is that a good strategy or is it foolish? It depends on many factors including where you will invest that income. You may be wondering whether it’s better to wait until your full retirement age (see Figure 1) to start receiving your benefit or should you capitalize on that income early to invest?
If you invest your Social Security in equities and have a long-term time horizon, that could work out. However, you should consider delaying if you will be investing in bonds or other fixed-dollar investments. If you are going to start after full retirement age of 66, you will benefit from the delayed credit. Waiting until 70 to claim benefits would mean that you will receive much more income each month, and it’s guaranteed money. Investing is never a sure thing, especially in the short run. Remember too that benefits will increase due to cost of living adjustments that kick in after age 62.
Your health will also play a key role as well
The effectiveness of your claiming decision, in large part, will be determined by how long you live. The longer you live, the better delayed claiming will turn out to be. A general rule of thumb is:
- Below average health: claim early
- Average health: claim at full age
- Above average health: claim late
A viable approach is to hedge your bet. If a married couple is between average and above average health one spouse can claim at their full age while the other delays to age 70. In this scenario it is recommended that, regardless of health, the higher income recipient delays claiming to age 70 to ensure a higher death benefit for the beneficiary. Innovations in Fintech have resulted in additional resources that can assist investors in estimating health and life expectancy in retirement. www.genivity.com is one example.
What’s your strategy? Everyone is different, and only you are going to know what is best for you. The important thing is to have a strategy and plan in place which considers the tax aspects of Social Security as well as the implications for Social Security benefits while you are still working. If you don’t have your Social Security plan in place yet – get started today!