Now would seem to be a good time to start preparing for Social Security. In the next 18 years, 77 million will turn 62 at a rate of about 10,000 per day. Sixty-two is the magic age for claiming early benefits. Many are taking the quick route and claiming benefits as early as possible. This may be a mistake. An integrated analysis with your other sources of income may very well lead you to a different conclusion. You will unlikely be able to live off Social Security benefits alone in retirement. In fact, it is estimated that
Social Security benefits represent about 40 percent of total retirement income that is needed to meet basic living expenses.
For those familiar with our Maslow Meets Retirement article (part 1, part 2) this would represent the first rung on the retirement pyramid (survival money).
Below are some Do’s and Don’ts you may want to consider when it comes to Social Security.
- Don’t make a $500,000 mistake. That could be the difference between claiming social security at 62 instead of 70. For someone who lives to 95 and exceeded the maximum taxable earnings* for Social Security during their employment years, they could experience that big of swing. If you only lived to 75, you could lose approximately $55,000 with this strategy. However, many of us would take the risk of losing $55,000 for the possibility of gaining $500,000.
- Maximize your benefits by working a full 35 years. You need 40 quarters of earnings to qualify for Social Security benefits, but the benefits are calculated based on the highest 35 years of earnings. If you worked 10 years, you would qualify for benefits but those benefits would be a fraction of what you would have if you worked the other 25. Many women had interrupted careers and would benefit financially from completing their full 35 years of Social Security earnings.
- If you are married, make sure you coordinate your benefits with your spouse. This also applies to divorced spouses as long as you were married to the same person for at least 10 years. Often the best strategy is to delay claiming benefits for the higher earning spouse.
- Don’t take someone else’s strategy and apply it to yourself. We have found that differences in a client’s situation can make a big impact on the strategy they should use.
- Don’t count on Social Security going away. Don’t make decisions on when to take benefits with the fear that Social Security is going away. It is the younger generation who funds the current recipients and we believe the adjustments will be borne by the former.
- Don’t count on Social Security staying around. But you just said… Although a sound Social Security strategy can reap benefits, you should also be saving additional monies for retirement in the event something does happen to Social Security.
- Women don’t leave it to your husband to figure it out. Seventy percent of women outlast their husbands.
If you have a specific question unique to your situation, ask me about our Social Security Analysis.
[caption id="attachment_436" align="alignleft" width="150"] John Dragstrem[/caption]
Coyle Financial Counsel’s John Dragstrem, CFP® has been providing ongoing wealth counsel to families as they navigate life’s transitions for the past ten years. Contact John and learn more about how mind mapping can help you and your family .
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*In 2012 the maximum taxable earning is $110,100 but in 1969 it was $7,800.
Posted on Sun, April 1, 2012