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Social Security Planning

For most people deciding when to retire is one of the biggest decisions they will make in their lifetime. Social Security often plays a significant role in many people’s retirement plan. The way we like to think about Social Security is that it is an inflation-protected joint and survivor annuity insured by the US Government. In our practice we have seen Social Security payouts provide anywhere from a very insignificant part to a major piece of a client’s retirement income. Do you know how it fits into your plan?

7 things you need to consider before deciding when to begin Social Security Benefits?

  1. Life Expectancy
  2. Total Retirement Assets: 401(k), IRA, Other Investments
  3. Health / Long-term care expenses
  4. Expected income needs
  5. Inflation expectations
  6. Pension Benefits
  7. Tax Rates

When Should You Apply For Social Security Retirement Benefits?

As a financial advisor, we are often asked about the best time for someone to begin collecting their Social Security benefits. Usually, this question comes from people approaching age 62, when they wonder: “Should I apply at 62 and grab as much money as I can or wait until 65 or 66 or even 70 to get the higher lifetime monthly benefits?”

In some respects it is a math problem. Basically, you can get a lower monthly payment for a long period of time or a higher payment for a shorter period of time. The answer would be much simpler if you only knew exactly how long you were going to live. While going through this analysis, Clint Eastwood might ask: “Do you feel lucky?” If you feel lucky with respect to a long life, claiming late may make the most sense. But in reality, longevity is only one of many factors in a complex decision. With Social Security, as well as retirement planning in general, there are no one-size-fits-all solutions. Other variables to be considered are: current and anticipated cash needs; other sources of retirement income; whether you plan to work after you begin benefits; and finally, what would be the benefit vs. the cost of delaying benefits?

Are you ready to come find out your number?

Differences in Retirement Benefits Can be Substantial

As a first step in the Social Security analysis, you will want to find out approximately how much of a benefit you would receive at different ages. You can also obtain an estimate at any time from Social Security at their website: www.socialsecurity.gov. It is simple to do and only takes a few minutes.

The following chart provides an estimate for a hypothetical worker and will illustrate how the monthly benefit can differ based on age.

Age Monthly Benefit
62 1487
66 (full retirement) 2179
70 2880

If the worker waits until full retirement age, his or her benefit will be about 47% higher than at 62 (the earliest opportunity). Waiting until age 70 nearly doubles the age 62 benefit. For each year the worker delays filing, the benefit grows by approximately 8%. It is worth noting that the benefit does not grow after age 70.

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