5 Tips for Retirees- Tip 3- Social Security Do’s and Don’ts

Matt with EWA. Chris with EWA. In this video, we’re gonna talk about some do’s and don’ts for social security planning. So Matt, one common question that typically comes up is, when should I claim social security?

That’s a great question. Some many factors that come into play when determining your social security is, will you still have an earned income? If you still have an earned income, then you have to look at these tables which show when your full retirement age is.

If your full retirement age is reached, you do not need to worry about how much income you’re earning. Social security will not be offset. If you decide to claim social security before your full retirement age, if you’re an above 19 ,560, every $2 you’re an above this, $1 of your social security will be offset.

So if you’re earning an income above the 19 ,560, would naturally recommend that you delay till your full retirement age. Other considerations are, if you were born before 1953, there may be some unique strategy available to you.

Claim now, claim more later. We’re one spouse claims. The other spouse claims half of that benefit called a restricted application. Well, their own benefit gets delayed at an 8% increase per year. And then once that person reaches 70, that spouse retains their own benefit.

And then potentially if the other spouse could then claim half of their benefit, whichever one is higher. So if you are a married couple, some considerations have taken place. The higher benefit always stays, whether that person is living or not.

So as long as you’ve been married for 10 years, if the first spouse is paying $1 ,000 a month and the second spouse, their full retirement social security is $3 ,000 a month, that $3 ,000 a month when that spouse passes will continue on to the surviving spouse, which will replace the $1 ,000 a month.

Some other considerations to consider are what are your goals for legacy planning? There is an 8% increase that occurs between delaying from age 62 all the way up till 70. There’s no increases past 70. So if you plan on leaving, wanting to leave a big legacy for your children, then typically delaying as long as possible makes sense because the present value, as long as you make it past the age of 87, assuming a 6% discount of return, meaning that your portfolio assets that you would have otherwise have drawn on were earning at least 6%.

Typically the break -even is age 87. If you live till 90 or past 90, there can be as much as we’ve seen about $100 ,000 in present value terms difference in your net worth that would pass on to your children.

If legacy planning is not a big concern and you have a healthy amount of assets in your portfolio, we would argue that social security is not a financial consideration, more than a peace of mind consideration, meaning that generally speaking, if you’re okay, if you have enough money between social security and your portfolio assets, whether you take it, for example, at 66 or 70, it’s more of a consideration for your peace of mind.

Are you okay spending money coming from the government every month? Are you not okay with withdrawing money out of your portfolio? Typically we see retirees have an easy time spending social security money and they have a very difficult time breaking the habit of savings and then also pulling money out of their portfolio.

So if someone takes it at 66 and lives and passes before 87, that was a great choice. Financially speaking, if they live past 87, there may be less money for their kids, but it could still be a great choice because those early years when they’re active and healthy, they had more peace of mind by having a guaranteed income source and that also allowed them to take less money out of their portfolio and to ease into retirement more comfortably.

Again, breaking the habit of savings is hard and then also taking big distributions is hard we’ve seen as well. So there are not just financial implications of social security getting an 8% increase every year, how much you earn when you take it.

There are a lot more psychological factors that come into play and we have to balance those out between spending patterns, legacy goals, retirement income goals, how active you are, et cetera. We look forward to answering any questions you have around social security and making sure that you have a plan to optimize not only the financial aspects, but also the peace of mind aspects as you navigate your retirement income distribution plan.