Social Security – Things to Consider

Planning for retirement can be confusing. Between investing in your employer-sponsored retirement plan and deciding when to draw on Social Security, there are a lot of moving parts to consider.

A Few Basics

If you’re counting on Social Security as a major source of retirement income, your decisions on when to retire and when to claim Social Security benefits will affect how much your monthly payment will be in retirement.

When you work and pay Social Security taxes, you earn “credits” toward Social Security benefits. The number of credits you need to get retirement benefits depends on when you were born. Anyone born in 1929 or later needs 40 credits, which is about 10 years of work.

What’s the best age to retire?

The benefit amount you receive at your full retirement age is based on your lifetime earnings. But your full retirement age may be higher than you think. The retirement age used to be 65 for everyone, but is gradually increasing to 67, based on when you were born.

It’s also important to remember that the amount of Social Security benefits you receive monthly depends on when you start receiving benefits. We all become eligible for benefits at age 62, but you’ll receive less per month than you would if you choose to retire at age 70 because the same amount of money is being spread out over a longer period of time. (cont. on back)

Consider this example:

Let’s say you turn 62 in 2018, your full retirement age is 66 and 4 months, and your monthly benefit starting at full retirement age is $1,300. If you start getting benefits at age 62, your monthly benefit is reduced 26.7 percent to $953 to account for the longer time you receive benefits.1 This decrease is usually permanent and sets the base for benefits you’ll get for the rest of your life.

If you choose to delay getting benefits until age 70, you would increase your monthly benefit to $1,681. The benefit at age 70 in this example is 76 percent more than the benefit you would receive each month if you start getting benefits at age 62 — a difference of $728 each month.1

This example is hypothetical and for educational purposes only. It is not representative of any specific individual.

Will my Retirement Plan impact the amount of Social Security Benefits I receive?

The short answer is no. Your employer-sponsored retirement plan and Social Security benefits are entirely separate. The amount of savings in your retirement plan won’t diminish the amount you’ll receive from Social Security. However, the amount you receive from both accounts together can have tax implications. Consult your tax advisor about how your adjusted gross income might affect your taxes.

Deciding when to retire is a personal decision that depends on several factors, such as your cash needs, your health and family longevity. These days, about one out of every three 65 year olds will live until at least age 90, and one out of seven will live until at least age 95.2

That’s why it’s more important than ever to create a retirement strategy to help your savings and other sources of income last longer. A financial professional can help you make an informed decision based on your individual and family circumstances. Sometimes, your choice of a retirement month could mean higher benefit payments for you and your family.

Once you’ve decided when you want to start receiving your monthly Social Security benefit, you can apply up to four months before the date you want your benefits to start. That way, you can balance investment income with Social Security benefits and work toward achieving your retirement savings goals.

1 Social Security Administration Publication No. 05-10147, January 2018
2 https://www.ssa.gov/planners/lifeexpectancy.html

455000-13