When Should You Take Social Securtity?

For wealthy individuals and couples, Social Security might appear to be a smaller component of the overall wealth plan. However, overlooking its nuances could mean leaving value on the table long-term.  Let’s discuss considerations for optimizing your Social Security benefits, ensuring this component of your retirement works hardest for you.

Social Security Overview

Social Security is the bedrock of the U.S. retirement system, providing retirement, disability, and survivor benefits funded through payroll taxes. The benefit amount you receive is based on your work history, although you can also qualify based on your spouse’s or ex-spouse’s work history. Social Security benefits are typically increased annually for cost-of-living adjustments (COLAs), preserving their purchasing power over time. For even the most affluent, this guaranteed income stream offers a valuable layer of financial security in retirement.  There are different considerations for single filers and married couples.

Claiming Strategies for Single Filers

For single individuals, the question is when to tap into Social Security benefits to maximize your lifetime income. The monthly benefit calculation is based on the recipient's full retirement age (FRA), between age 66 and 67, and it depends on birth year. One may elect to start benefits as early as 62, but this reduces the monthly payment. Those who delay to age 70 will maximize the monthly benefit.

Some individuals are tempted to make a claim decision based on immediate income needs over long-term ones. However, electing to delay filing until age 70 typically leads to more income over one’s lifetime, but not always. To understand the best option, ask your Wealth Manager to perform a break-even analysis to determine when the total value of delayed benefits is the same as taking benefits earlier. If you expect to live beyond the break-even point, delaying your claim could be the more financially sound strategy. The most comprehensive approach to making the social security decision is through the wealth planning process, which considers your overall income, expenses, and investment strategy. 

Strategic Social Security Moves for Married Couples

For married couples, Social Security is a team effort. The goal is to maximize your combined benefits and protect the surviving spouse.

Often, it makes sense for the higher-earning spouse to delay claiming until age 70. This boosts their own retirement income and ensures the largest possible survivor benefit for their spouse. The lower-earning spouse could claim earlier, perhaps at their full retirement age or even 62, for earlier income – without reducing potential survivor benefits based on their spouse's record.

If one spouse has a limited work history, they may be eligible for "spousal benefits" up to half of the higher earner's full retirement amount. However, these spousal benefits can't start until the higher earning spouse claims their own Social Security.

Married couples should evaluate Social Security strategies within the broader context of a comprehensive plan to optimize your combined retirement income and security.

Navigating Social Security After Divorce

It’s important to understand the details not only of your own earning history, but also your ex-spouse’s. This helps you figure out the best time to claim Social Security and how to make the most of the benefits you're entitled to.

If you were married for 10 years or more, you might be able to tap into benefits based on your ex-spouse's work record. The good news is that you don't even have to wait for your ex to start taking their Social Security.  As long as you are at least 62, did not remarry, and your divorce was finalized at least two years ago, you may claim benefits based on your former spouses work history.

Additionally, if the former spouse passes away and you remain unmarried, you could be eligible for survivor benefits.  These benefits are worth twice as much as if your ex was still alive.

The Future of Social Security

There's talk about potential challenges for Social Security down the road possibly leading to benefit adjustments around 2033. However, the system is vital for many, and it's widely expected that Congress will take action to keep it going, possibly by adjusting payroll taxes, benefit calculations, or retirement ages.

Keep in mind that recent workforce reductions at the Social Security Administration could lead to delays in getting benefits processed, but this isn't the same as benefits being cut.

Even with these potential shifts, your decisions about when to claim Social Security remain important for your long-term financial security. If you have questions about your strategy given the outlook, reach out to your Wealth Manager.