What if you told someone that they could have a guaranteed revenue stream for the rest of their lives and their spouse’s life, with inflation protection to help meet their retirement needs?
They would probably be interested and a bit surprised to realize that you were talking about Social Security.
For many people, Social Security has become an afterthought when it comes to their retirement plan. The focus generally centers on their investments and trying to beat some random market index. This is largely due to a misunderstanding of how the system works.
Below are some facts about Social Security that should prove helpful when planning for your own retirement.
35 – That is the number of years that Social Security takes into account when determining your benefit. They look at your highest 35 years of earnings history for people with over 35 years of earnings. If you work less than 35 years, then those years will count as zero when determining your average. Replacing years of lower or zero earnings can prove beneficial when calculating your future benefit. It also pays to periodically check your earnings history to ensure accuracy.
62 – This is the earliest age people can claim benefits, except for widows and people with disabilities. The important thing to remember is that claiming benefits before your full retirement age can substantially reduce your lifetime benefits and potentially your spouse’s, as well. For people not optimistic about living a long life or in need of immediate income, claiming at age 62 might make sense. For most others, the benefits of waiting to claim can be substantial.
8 - For every year you delay benefits past your full retirement age, you will receive an eight percent bump in your benefit until age 70. Your benefits would also be adjusted annually for any cost of living adjustments, giving you greater incentive to delay. Of course, there are variables in this decision, such as the opportunity cost of not receiving and being able to invest the proceeds at age 62 and dying prematurely. That being said, the decision to delay and receive a guaranteed increase and inflation adjusted lifetime revenue stream can reap tremendous benefits for most couples.
Now that you have a better understanding of how Social Security works, it is time to do some proactive planning. A great place to start would be to go to the Social Security website and gain instant access to your benefit summary. Choosing the optimal claiming strategy for couples can be confusing, considering there are many different ways to file.
You should work with someone who incorporates Social Security optimization into their financial planning strategies. Protecting your family against unexpected inflation, down markets and longevity should prove beneficial when putting your financial plan together.
At Tushingham Wealth Strategies, our goal is to help you proactively oversee all of your financial affairs by serving as your “Personal CFO” and fiduciary, so that you may live your ideal life worry free. As part of our "Personal CFO" service we help families develop "late stage" college planning strategies so that they can save money on college, protect their retirement assets and help their children graduate with minimal student loans. This is why our “Personal CFO” services will help you integrate college and retirement planning into one strategy.
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