Maximizing Social Security Retirement Income

In this article, you’ll learn:

  • The basics—what do you need to know about Social Security?
  • When to take Social Security benefits to maximize your retirement income.
  • Tips for incorporating Social Security into your long-term retirement plan.

Have you estimated how much income you will need in retirement? Do you know how much of it your Social Security benefit will cover? Social Security benefits are an integral part of retirement planning for many Americans, but folks are often surprised by how much their actual retirement spending differs from their estimates. If you don’t know what your expenses could be or how long you will need retirement income, you can’t know if Social Security will be sufficient. So when planning to use Social Security, take into account your and your spouse’s life expectancies, your necessary and discretionary living expenses and anything else you may need to pay for in retirement. Prepare to live a long time to make sure you have enough money.

The following tips will also help you figure out how to maximize Social Security benefits. Whether you rely on Social Security as your main source of retirement income or use it as an income supplement, understanding your Social Security options can help you build the retirement income strategy you need.

What You Need to Know About Social Security

Social Security is a retirement benefit managed by the Social Security Administration. It is based on collecting taxes from current workers and paying a percentage of the proceeds to those who already paid into the system and are retired or eligible for benefits. You and your employer pay Social Security taxes on a portion of your earned income. After you retire you receive monthly income based on the amount you paid into the system.

Here are a few things to understand about Social Security:

  • You need to accumulate credits. To receive Social Security benefits, you need to accumulate credits by earning employment income. For 2019, you receive one credit for each $1,360 of earnings, up to four credits per year.
  • In general, you need at least 40 credits to receive Social Security benefits. If you earn the full four credits per year, that comes to about 10 years’ worth of work before you can apply to receive benefits.
  • You can’t count on Social Security to remain at the same level indefinitely. Social Security isn’t guaranteed and could change in the future. For example, in the past, Congress has adjusted what is considered full retirement age—the age at which you are eligible to receive your maximum benefit.

While creating a retirement income plan, keep in mind—the longer you work, the more credits you are likely to earn, and the more benefits you are entitled to.

When Should You Begin Taking Social Security Benefits?

Most people can start taking Social Security at age 62, but if you elect to take Social Security before full retirement age—determined by the Social Security Administration based on year you were born—your monthly benefits will be lower.

The longer you wait to claim benefits—up to full retirement age—the more you will receive in Social Security income. Consider the following scenarios:

  • Under full retirement age and working. Assuming you’re already earning enough to support yourself, it’s a disadvantage to begin taking benefits under full retirement age. If you do, your benefits will be reduced, you’ll be subject to the earnings limit, and you could end up paying more in taxes.
  • Under full retirement age and retired. Perhaps you are retired, but you haven’t yet reached full retirement age. Your Social Security benefits will still be reduced if you start taking them now. But some retirees might need the cash flow for day-to-day expenses, or you might have a shorter life expectancy and want to take what you are entitled to while you can.
  • Full retirement age or later. When you reach full retirement age, you could begin receiving full benefits. However, if you wait until at least age 70, you could increase your Social Security income further. Hence, some retirees may prefer to meet their needs with other income sources while letting their benefits grow. Taking full Social Security benefits can help combat the rising costs of living as you age.
  • Family situation. Include beneficiaries and your spouse in your calculations. There are no earnings limits for beneficiaries who continue to work but still collect their benefits based on your Social Security earnings. Your spouse might be eligible for up to 50% of your benefits if you have been married at least a year or have a child together—even if he or she hasn’t paid into Social Security.
  • Life Expectancy. How long do you expect to live? It’s important to plan for a long life in retirement, but if you’re in poor health, or if your family history shows evidence of a shorter lifespan, you may be better off claiming Social Security earlier rather than later.

How long you and your spouse work and whether you delay taking Social Security benefits depend on your personal situation.

Incorporating Social Security Into Your Retirement Income

How you maximize Social Security is unique to your situation and retirement goals. If you start planning early, your longer-term retirement strategy can incorporate these choices about Social Security benefits and when to start taking them. Depending on your situation, you can use Social Security income to:

  • Fund day-to-day living expenses so you can maintain adequate cash flow. Decide how much you need for non-discretionary spending such as groceries, gas and utility bills. Set aside some funds to pay off credit card debts, mortgages or car loans. And don’t forget you will still have to pay income taxes in retirement, so set aside enough to settle your tax bill each year.
  • Save so you have funds available for emergencies. You could also use savings for entertainment expenses such as travel, hobbies, fine dining and spoiling your grandchildren.
  • Invest and take advantage of compounding returns so you have more money down the road.

Know Your Options

Planning a financial strategy based on your needs and goals is important, and Fisher Investments can assist you. Our advisers can help you review your choices and put together a plan to maximize your retirement benefits. For more information please contact us or download our Social Security guide.

* The content contained in this article should not be construed as tax advice. Please consult your tax professional.

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