The Significance of Your Social Security Claiming Strategy
December 18, 2023 Author: Tess Downing, MBA, CFP®, Complete View Financial
With social security being a significant part of your income during retirement, it is essential to understand the process and to choose the right claiming strategy. The decisions you make regarding personal finance affect your living standard, with social security at the forefront of this.
At the beginning of your working career, your capability to change your Social Security retirement benefits is solely based on how much you can contribute each year. Eventually, benefits will be calculated on your income based on the 35 highest-earning years of your work life. The earlier you start, the better.
You only need 40 quarters of a defined minimum amount for Social Security to qualify, not 35 years of contribution. However, Social Security will input a $0 for any years you fall short of 35. These zeroes could have a massive effect on the overall calculation.
Will Social Security Even be There When I Retire?
Often, people don’t bother maximizing their Social Security contributions because they don’t think it will exist by the time they retire. The longevity of Social Security is complicated. It’s something that legislators don’t want to confront.
Most benefits come from the payroll taxes Social Security collects and income taxes on some Social Security benefits. For many years, its income has exceeded its costs. However, changing demographics, such as an aging population, have shifted the scale to where costs outweigh income.
Social Security could lower costs by raising the Full Retirement Age beyond the 67 age cap. Another option is to increase the payroll tax slowly to regain some of the income that has been lost. The need for corrective action is immense, with the question being when politicians will make the change.
Will Social Security be there when you retire?
The answer is yes. However, it may be in a different form than you currently see it in today.
Sources for Social Security Information
Your Research: There is endless information on Social Security, including claiming options. The hard part is determining what strategy works for you. Also, with the information you find online, you can run comparative calculations to know where you stand. When doing these calculations, utilize the maximum age of life, not average life expectancy.
Your Financial Advisor: Your financial advisor will know what is available under the present legislation and what may change. Here are some factors that affect the best-claiming strategy for you:
- Benefit reductions for claiming before FRA
- Retirement credits for claiming after FRA
- Maximizing a couple’s combined benefits
- Impact of timing on dependents
- Suspending or reinstating retirement benefits
- Earnings test
- Taxation of benefits
- Family maximum benefits
- Disabled families' maximum benefits
- Special rules for widow(er) benefits
- Rules for divorced spouse benefits
- Private pension interactions
NOT the Social Security Administration: There are people in this administration who know every provision by heart, such as its actuaries, technicians, and legal experts. However, these individuals are not the ones answering the phone. Employees in this administration may need to be trained better to help with your specific situation.
Who are the Beneficiaries Affected?
Here are some beneficiaries that could be affected when making your Social Security decisions:
- Spouse’s Benefits
- Retirement benefits
- Social Security disability benefits
- Divorced spouse’s benefits
- Child-in-care spouse’s benefits
- Widow(er) and divorced widow(er)benefits
- Child’s benefits
- Childhood disability benefits
- Surviving child’s benefits
- Mother and father’s benefits
Depending on how you decide to claim your retirement benefits can affect any one of these groups of people. You need to claim before others can benefit. If you suspend your own benefits, no one else can receive any based on your earnings record.
What Happens if You Get It Wrong?
Social Security offers you two redos.
- You can withdraw your application if you’re still in the first 12 months of filing. You have to repay anything that Social Security has paid on your work record, but your benefits will go back to what they were as if you never filed.
- Once you reach FRA, you can ask to have your benefits suspended for as long as you want, up to age 70. You don’t have to pay anything back, and your benefits still grow each month they are in suspension. When you restart, your benefits will be at a larger amount.
Overall, Social Security benefits are essential to your retirement plan. Make sure you are working towards the maximum benefits with existing legislation. If you need help developing a strategy, contact us today.