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Social Security

According to a report by the Center for Retirement Research at Boston College, 90% of Americans begin collecting their Social Security retirement benefits at or before their full retirement age.  As it turns out, the most popular age to begin is 62, which is the earliest age possible.

The key to maximizing your Social Security benefits does not come from a standard Social Security analysis where different withdrawal strategies are compared, such as taking your benefits early at age 62, taking benefits at your full retirement age, or deferring benefits until age 70, in order to choose the one that provides the largest benefit.

If your goal is to maximize your Social Security benefits, then choosing the correct withdrawal strategy for your particular situation depends on several factors.  In other words, when determining the best way to take your benefits, don’t plan in a vacuum.  Instead, look at it from a holistic point of view.  Consider your tax planning objectives.  Some questions to ask would be: How can you take your benefits to create the lowest tax liability?  What impact will this have on any capital gains or retirement account distributions, or even any planned Roth conversions?  Take into consideration other sources of income such as pension, wages, interest, dividends, and even certain types of tax-free income, as well as strategies to reduce taxes on Social Security.  Also, take your estate planning goals into consideration.  Do you want to leave a legacy?  Do you want to spend down your assets?  Consider marital issues if you are married.  Will any income be lost at the death of a spouse and if so, is it important to replace that lost income?  What impact will this have on surviving spouse taxation?  Consider health and projected longevity.

Case in point, I met with a couple yesterday and they brought with them a social security analysis they had received.  The report compared the different ways they can take their combined Social Security benefits and illustrated how deferring their benefits until age 70 was the best strategy as this provided the most amount of income if at least one of them lived past 81 years of age.  While I can agree that for many people, that makes complete sense, it was a poor recommendation for this couple.

While this couple wanted to get the most out of Social Security, they also wanted to be tax smart and ensure sufficient assets for the surviving spouse.  It wasn’t important to them to leave a legacy.  By looking at the areas that were important to them, such as tax planning, they learned that it didn’t make sense to defer their benefits.  In fact, by starting their Social Security benefits immediately, they will actually end up with more income, pay less in taxes, and do a much better job providing sufficient assets and income for the surviving spouse.

Bottom line, your Social Security benefit is an asset and you should treat it as such.  To determine the right way to maximize your benefits, look at your needs and goals from a holistic point of view.  For more information on give our office a call and watch the tv show at its new time Saturdays at 11:30am

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