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June Wine Talk: Social Security Planning

There are a lot of questions surrounding Social Security benefits especially in light of the recent coronavirus pandemic.  There are a few aspects to look at to analyze and optimize your income from Social Security.

First of all, there are a few facts important to understand about Social Security:

1- You can claim Social Security at age 62 for a reduced benefit, 66-67 for full retirement age benefit, or 70 for an increased benefit.

2- Only 4% of retirees wait until age 70 to take social security leaving an average of $111,000 per household of potential income on the table

3- Wives outlive their husbands by on average 7 years.

Now, there are alot of factors that are causing people to rethink their Social Security claiming decisions, portfolio declines being one of them.  We think that this decision should not be tied to investment returns or portfolio values. The relevant number to think about here is the spending need, not the total amount of available assets.  True, the amount taken from your investment account may be higher now, but if the Social Security benefit  is delayed, the amount needed from your investment account will be less once the benefit begins, since the Social Security benefit will be greater.

Another very important aspect to consider is the benefit for a spouse.  Since wives statistically tend to live longer than husbands, delaying the Social Security benefit of the husband will secure a higher survivor benefit for the wife.  In this instance, this is because the annual social security income at the end of the husband's life is what the wife's income would be.  With this in mind, the spouse with the highest earnings history should wait until age 70 to apply for Social Security benefits.

It is possible to take social security while still working.  An important element to this is that there is a possible reduced benefit.  If you are under the age of 62 and exceed an earned income limit (as of 2020) of $18,240 per year, your Social Security benefit will be reduced by $1 for every $2 you earn in excess of the limit.  Why would anybody consider this?  The concern is that the Social Security trust fund may be exhausted before you are able to claim your benefits.

Is it prudent to take what you can get now, especially in concern to the trust fund being weakened by the coronavirus situation?  The answer really hasn't changed.  Estimates of the trust fund exhausting have not changed considerably.  In essence, nobody expects the trust fund to completely run out.  A reform of the Social Security system is far more likely before that would happen.

Want a better understanding of what a wealth manager should be doing for you?

Call us today at (707) 252-1343