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Making the Most of Social Security

It seems fashionable for many to downplay the importance of Social Security as a source of funds for retirement.  “Oh the system is bankrupt anyway.”  “How do we even know the system will be around?”  Comments such as these indicate that many people feel as if the system a) is not all that crucial anyway – shouldn’t we save for ourselves or b) is somehow in danger of being rescinded by an act of Congress.

Let’s be clear.  Social Security is not going away.  It may change.  It may not be as lucrative to people of my generation as it has been for our parents.  But it will remain.

Social Security is a crucial component of most retirement income plans.  Without Social Security income, 90% of the retirement plans we have done over the years would likely fall apart.  Even most people who have saved throughout their lives and have sizable nest eggs in their 401k accounts will still rely on Social Security as an inflation adjusted income base that cannot be outlived.

As a critical component of most retirement plans, Social Security claiming strategies are getting increased attention in the financial media.  How and when you go about claiming your benefits can make a difference of tens of thousands of dollars or more in benefits over the course of your lifetime.   The following video by renowned retirement expert, financial columnist and expert on all things Social Security provides some interesting insight .  http://blip.tv/WealthTrackSyndication/mary-beth-franklin-6552016

The primary takeaway from any study of Social Security is this.  If you are in good health and plan to live a long life, it may be wise to delay claiming your benefits as long as possible up to age 70.  Your monthly benefit increases every year until age 70.  Waiting beyond age 70 makes no sense, as it will not increase your benefit. 

If you are in poor health and living to the average life expectancy for someone your age is doubtful, then claim your benefits early.  Also, don't forget your spouse.  If you pass away, your spouse gets the greater of your benefit, or his / her own benefit - so claiming early may permanently reduce the benefit your spouse is entitled to even after your death!

There are even hybrid strategies in which a spouse (after full retirement age) can initially claim just his / her spousal benefit (50% of the spouse's income) then later switch to a larger benefit based on his or her own work history once that benefit maximizes at age 70.  This is sometimes referred to as the "some now - more later" strategy.

Everyone's situation is unique.  Your own Social Security claiming strategy depends many factors, including your overall retirement savings, other sources of retireent income, your cash flow needs, tax situation, your age and your spouses age, health factors, and more.  Optimizing your social security benefit should be part of your comprehensive financial plan. Speak to your favorite fee based Certified Financial Planner to learn more!

Jim Kinney is a Certified Financial Planner™, and founder of Financial Pathways, an independent fee based financial planning firm in Bridgewater New Jersey.


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Comment   |  6 years, 6 months ago from Bridgewater, NJ