Social Security is one of the most important income sources for American retirees, yet many people claim benefits without a clear strategy, resulting in missed opportunities and reduced lifetime income. It’s essential to make smart, informed decisions about when and how to claim Social Security and to integrate this benefit into a broader financial plan for long-term confidence. In this blog, we’re taking a closer look at what you should know about optimizing Social Security benefits.
How Social Security Benefits Work
Your Social Security retirement benefit is based on your highest 35 years of earnings, adjusted for inflation. To qualify, you typically need to earn 40 work credits, equivalent to approximately 10 years of work.
Understanding your Full Retirement Age (FRA), which is the age at which you’re entitled to 100% of your benefit based on your earnings record, is key. FRA ranges from 66 to 67, depending on the year you were born. Claiming before your FRA will permanently reduce your benefit, while delaying beyond FRA increases it by 8% per year until age 70.
Key Factors to Consider When Claiming Benfits
There are several important factors to consider in deciding when to claim Social Security, including:
- Claiming Age: You can begin benefits as early as 62, but doing so reduces your monthly benefit. Waiting until FRA or beyond can significantly increase your payout.
- Life Expectancy: If you have a family history of longevity or are in good health, delaying benefits might pay off in the long run.
- Spousal Benefits: Married couples should coordinate their claiming strategies to maximize household income. Spouses can receive up to 50% of the other’s FRA benefit.
- Taxes on Benefits: Depending on your total income, up to 85% of your Social Security benefits may be taxable. Effective tax planning can help you manage this.
- Other Retirement Income Sources: The timing of your Social Security claim should align with withdrawals from retirement accounts, pension income, and other investment assets.
Common Claiming Strategies
There is no real “best time” to claim benefits, but there are proven strategies worth considering, including:
- Delayed Claiming: Waiting until age 70 offers an 8% increase in benefits for each year you delay past FRA, providing valuable guaranteed growth.
- Spousal Strategies: Couples can stagger claiming ages to maximize benefits and survivor protections.
- Coordinating for Two-income Households: When both spouses have earned benefits, strategic timing can significantly increase total household retirement income.
- Survivor and Divorcee Benefits: Widows, widowers, and divorced individuals may be eligible for benefits based on a former spouse’s earnings record, which is an important planning consideration.
Be sure to speak with your financial advisor about which strategies are best for you and your unique financial situation.
Integrating Social Security into a Broader Retirement Plan
It’s important not to view Social Security in isolation. The age you claim affects how and when you might draw down other retirement accounts like 401(k)s, IRAs, and taxable investments. Market conditions, inflation expectations, and healthcare expenses should also be factored into your decision.
At Blakely Financial, our advisors can make projections to help you understand how different claiming strategies will affect your overall financial picture both immediately and throughout your retirement.
Working with a Financial Advisor to Optimize Benefits
Optimizing Social Security benefits is a highly personalized process. The right strategy for you will depend on your health, financial goals, other income sources, tax situation, and family circumstances. Our advisors specialize in retirement income planning and Social Security optimization, using sophisticated tools to help you make informed decisions that fit your long-term goals. We also stay on top of legislative changes and Social Security rules so we can ensure your plan remains aligned with your goals.
The decision about when and how to claim Social Security can have a lasting impact on your financial future, and a well-crafted claiming strategy integrated with your overall financial plan can help you secure greater peace of mind and a more confident retirement. Contact Blakely Financial today to begin exploring your options.