One of the most significant financial decisions many Americans face when approaching retirement is choosing when to begin claiming Social Security benefits. It is essential to understand that everyone has a unique situation, and many factors must be considered carefully to determine the most optimal strategy for you and your family. Factors such as your income needs, age, health, and current savings must all be considered. Making a silo decision based on one factor alone can be detrimental to your retirement.
Your financial situation and income needs in retirement play a significant role in the decision-making process. If you have other sources of income, such as retirement savings, you may be able to delay Social Security benefits to maximize their value.
Consider your overall financial portfolio. If you have significant retirement savings, it may make sense to convert those assets to income to cover expenses in the early years of retirement, allowing you to delay Social Security benefits for a higher payout later. This can be a major psychological bridge to cross as many families spend their entire lives saving for retirement and are used to seeing their precious nest egg grow over the years. Turning these assets into an income stream can be a significant change for most retirees to see their accounts begin to decrease to support their standard of living until they turn on Social Security. Delaying your benefit also helps address one of the most common worries of outliving your savings. By delaying your benefit, you receive a higher monthly payment and will, in return, be taking less from your savings. This strategy also reduces the amount of required minimum distributions later in life, potentially helping to lower your lifetime tax bill.
The age at which you start receiving Social Security benefits significantly affects the monthly amount you'll receive. You can claim benefits as early as age 62, but doing so will result in a reduced monthly benefit compared to waiting until your full retirement age (FRA), which typically ranges from 65 to 67, depending on your birth year. Delaying benefits beyond your FRA can further increase your monthly payout. One crucial factor to consider is your life expectancy. If you expect to live a longer, healthier life, it might be advantageous to delay claiming Social Security benefits. This way, you can maximize monthly payments and provide more financial security for your family. If you have health concerns or a family history of shorter lifespans, taking benefits earlier may be a prudent choice.
Married couples have additional factors to consider. Spousal and survivor benefits can greatly impact the total benefits received by a couple. Delaying benefits can increase the survivor benefit, which is essential for the financial well-being of the surviving spouse after one's passing. Delaying the higher earner’s benefit can also increase the spousal benefit up to 50% of the higher earners benefit at FRA.
A FEG advisor can help your family create a personalized, comprehensive income strategy to help optimize your retirement.
Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.