The majority of conversations with our clients center around retirement planning.  This could be for a busy family that is 15 years away from retirement…a business owner seeking to transition out of a business…or a newly minted retiree getting ready for a new life!  

In ALL cases Social Security income plays a very important role.

Did you know that Social Security is so much more than just retirement benefits? This federal program, often a hot topic, has many nuances that can be tricky to understand. Did you know, for example, that the amount you get paid will depend on your marital status and lifetime earnings history, among other factors? 

Here’s a closer look at how Social Security works, what you can expect when it comes time to claim benefits, and so much more. 

Different types of social security benefits

Social Security is much more complex than most people realize. Many people see Social Security benefits as one type of benefit, but in reality, there are three primary types of Social Security benefits: 

• Retirement benefits
• Disability benefits
• Survivors benefits

Retirement benefits is perhaps the most well-known benefit. These benefits are meant for workers aged 62 or older; the size of your benefit check will depend on your average indexed monthly earnings (AIME) over your 35 highest-earning years as well as the age at which you start claiming these benefits. To receive your standard benefit, you will need to wait until full retirement age (FRA). More on this later!

Unlike retirement benefits, Disability benefits are available for anyone over the age of 18 who cannot work due to a physical or mental disability. The disability should last at least 12 months or result in death. Even if you haven’t earned 40 credits, you may still be eligible for this benefit – depending on your age. The amount of benefits is determined by your average lifetime earnings. 

Lastly, Survivor benefits are intended for family members of deceased workers who qualified for Social Security. The amount of the benefit depends on the deceased workers’ average income, adjusted for inflation, as well as the relationship with the deceased. Spouses 60 years or older (or 50 and older, if disabled) can claim these benefits. Surviving spouses of any age can also claim these benefits if they are caring for the child of the deceased. 

What is your full retirement age? 

If you were born between 1943 and 1954, your full retirement age was  66 years old. For those born in 1955 and after, the age rises two months every year until the age reaches 67, for those born 1960 or later. 

“Can I retire sooner than 67?”

Yes, you can retire earlier than your full retirement age AND take Social Security benefits! However, before taking this step, you should be aware of the pros and cons. Your total benefits, for one, will decrease. You can start taking benefits at age 62, but there are some hefty drawbacks to taking early benefits: 

• A smaller benefits check, especially compared to waiting until the full retirement age
• Benefits checks will remain smaller the rest of your life, except cost of living adjustments
• Reduced benefits, even with part-time work

Before making the decision to withdraw benefits sooner, consider what other income sources you have and whether you truly need Social Security. 

“How do I maximize my Social Security benefits?”

There are ways to maximize the amount of Social Security benefits you can receive. One of the best ways: waiting past your full retirement age. You can start taking Social Security benefits as late as 70 years old, and if you do decide to wait, you may find a much larger check waiting for you. 

Every month you wait to take your benefits past your full retirement age, Social Security will add a little extra to your paycheck. 

In addition, if you plan to work past your full retirement age and have a relatively high-income year, you may also find a much bigger check than you might expect. 

Understanding when you can take social security benefits 

At the end of the day, you can start taking Social Security benefits years before your FRA. However, it’s important to consider all of the factors that play into your payments and consider how much other income you may have. How will Social Security work with your other income sources? You can use the calculator on the Social Security Administration website to better understand how much you can expect from the agency – and when. 

Does my payment change over time?

The short answer is YES. The most important adjustment to Social Security payments is the Cost of Living Adjustment – the COLA. The most recent 5.9% cost-of-living adjustment (COLA) began with benefits payable to more than 64 million Social Security beneficiaries in January 2022. 

Be aware that Medicare premiums (which are generally deducted from Social Security payments) can fluctuate from year-to-year depending on household income. Did your Medicare premium spike recently? If so, reach out to your financial advisor or local social security office so they can explain why.

The bigger picture 

Social security is not intended to be your primary source of retirement income – and there’s a high chance that you will need to factor in other investments, pensions, savings, and financial sources of income to live a comfortable life. 

Retirement may last 20 years or longer, and that’s why it’s so important to plan for your retirement as soon as possible. That means saving into workplace retirement plans (401k, 403b), savings plans (IRA, Roth IRA), investments, and more. 

The best way to find out how Social Security plays a role in your retirement & what strategy to employ is to have a retirement income analysis done. You may just be surprised how much money Social Security deposits into your checking account over your lifetime.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.