PFA Updates

The Social Security Decision

Jul 11, 2019

 

Over the weekend the Akron Beacon Journal ran an article discussing Social Security and how many retirees are failing to maximize their Social Security benefits. While maximizing benefits from the government sounds wonderful in theory, making that a reality can be a bit more challenging. The article discussed a study which found that the general population of retirees are giving up tons of potential income each year simply because they are not starting their Social Security benefits at an optimal time. As with anything, knowledge is power and the article encouraged engaging with a professional before making this big decision.

Social Security has many nuances to it and can get rather complicated at times (I know it’s just shocking that a government run program may be confusing), but there are some basic facts that we must keep in mind when it comes to Social Security benefits. These facts are that a person’s window to start collecting Social Security begins at age 62 and can be delayed until age 70 at the latest. For every year that somebody waits, their monthly benefit increases by 8% per year.

When we have discussions with our clients about when they should begin taking Social Security, we like to start by saying that we could tell them the exact time to start Social Security benefits if…we knew how long they are going to live. Since we, of course, don’t know how long someone will live, we instead must rely on other factors (health, family longevity, retirement savings, etc.) to help make an informed decision. Often if you’re reading an article on the internet, the advice will be that every retiree should be waiting until 70 to get their maximum monthly benefit (the argument is that you’re giving up a guaranteed 8% return if you start early). Sometimes this advice is accurate, but many times it’s not what ends up being best for the client. We also have many clients who feel that since they’ve paid into Social Security for so long, they want to start taking their benefit as early as possible to make sure they get as much money back as possible in case they end up dying earlier than expected.

To walk through these various ways of thinking we have access to a software program designed specifically for the Social Security decision that will take a client’s exact situation and tell us how much income would be received from the government at specified ages. We use this calculator to look at multiple scenarios before someone pulls the trigger to start their Social Security benefits because we know that the best decisions are made when someone is well informed. If this calculator is something that interests you, just reach out to us, and we’ll be more than happy to run some different scenarios for you.

Have a good one!

-Dan


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