4 Reasons You Should Rethink Your Social Security Strategy

When was the last time you rethought your Social Security strategy? Do you even have a social security strategy? It’s fairly common for people to have a strategy for their 401(k) or IRA, but no strategy for their Social Security. If that’s the case for you, you may be leaving money on the table.

Whether you’ve never had a working strategy for your Social Security benefits, or if you have one, but haven’t revisited it in a while, here are four reasons you should reconsider:

Retirement Age

Regardless of when you want to retire, the Social Security office has its own idea of the proper retirement age, and it provides different levels of support accordingly. Currently, if you were born in 1955, your Full Retirement Age is 66 years and two months, and it will rise gradually to 67 years of age for those born in or after 1960. Full Retirement Age does not mean you can claim your largest starting paycheck – that happens at age 70. Full retirement means you are not receiving less than your full accrued benefit.

Your so-called ”early retirement” benefits are available as soon as age 62, but people who start collecting Social Security at that age could be cheating themselves out of money in the long run. “Cheating” in this case means not receiving as much total payout as you would have received had you waited and lived to a future breakeven age. Making matters worse, if you do decide to start collecting Social Security before your full retirement age, you forfeit $1 in benefits for every $2 of earned income from employment above a certain amount. For 2019, that earning limit is $17,640.

On the other hand, for every year you wait to collect Social Security, the benefits you’ll receive will go up until you reach age 70, at which point the benefits stop increasing, so it’s almost always a good idea to wait until age 70 before collecting Social Security. However, there are instances where claiming sooner would make sense. The simplest example is having a physical condition indicating a shorter lifespan.

If you are married, the possibilities are more complicated. Depending upon age of the spouses, it may make sense for one to claim it at different years than the other, either due to age differences or income differences. What many couples fail to realize is that when one spouse dies the surviving spouse will not get two Social Security checks. They will get either the check that they qualify for on their own record or half of the deceased spouse’s check, whichever is higher. Usually when a household goes from two people down to one, it does not mean that the survivor has half the expense. If this loss in income is going to cause a hardship for the surviving spouse, you could consider life insurance to make up for the lost income.

Life Expectancy

Although life is uncertain and there’s no way to tell for sure how long you’ll live, life expectancies are on the rise, which increases the possibility you might outlive your money. The earlier you start collecting Social Security, you may find yourself with a shortfall as time goes on. That may require that you find part time work or need to tap your savings at an increasing rate as you age to make up for the gap between Social Security and what you need to live. Waiting to, let’s say age 70, before collecting Social Security, provides you with a higher income, which will enable you to rely less on your assets, allowing those assets to last longer.

Cost of Living

Another important factor of retirement planning you need to consider is cost of living – AKA inflation. While your budget is a very important consideration when calculating how much money you’ll need in retirement, it’s important to remember that those prices won’t always remain the same. Inflation is a process in which the cost of living is consistently on the rise, and while certain things might increase or decrease the rate of that rise, there is no stopping the general trend upwards. Social Security includes cost of living adjustments so your paycheck will not remain static. The inflation adjustment is based on the year you claim. The earlier you claim, the smaller your adjustment, as the adjustment simply multiplies against your previous year’s amount.

High Income Phase Out Adjustment

If you are a highly compensated worker, you may find yourself with extra money in your current paycheck because your income is above the limit, which for 2019 is $132,900. That simply means you and your employer are no longer contributing to build your Social Security income. You need to adjust for this loss of income above the phaseout amount. Below that income you are contributing 7.65% and your employer matches. Above the phaseout, you should consider saving an additional 15.3% (the total Social Security contribution) to re-create Social Security-like income. That may include adjustments to your workplace retirement savings and creating a savings plan outside of that structure.

Conclusion

Social Security is very complicated and there are a lot of things to consider when deciding the best time to start collecting Social Security. While age 70 is the standard recommendation, it’s important to remember that everyone’s situation is unique, so 70 might or might not turn out to be the right age for you to start collecting Social Security. You can do some of the calculations on your own or find a reputable Social Security calculator, such as Maximize My Social Security. Beware of free calculators. They may not address all your complexities and exist to promote another product. You may find yourself better off consulting with a certified financial planner, retirement income certified professional, etc. to take a full accounting of your situation. You may be one of the exceptions to the general rules regarding claiming strategies. Social Security claiming does not offer a do over. Whatever you select is what you will have the rest of your life.