A Simplified Guide to Planning Your Social Security

In 1973, car radiophones were the only mobile phones available. Fearing AT&T would dominate the market, Motorola had engineer Marty Cooper create a groundbreaking product. Marty asked, “Why call a place when you want to talk to a person?” His question led to the portable mobile phone, now used by 97% of Americans.

Just like Marty, asking the right questions is crucial for financial decisions, including when to claim Social Security. Here’s a straightforward guide to help you navigate this decision.

Step 1: Determine Your Retirement Income Needs

How Much Income Will You Need?

Before deciding when to start Social Security, estimate your monthly retirement income needs. Many people don’t calculate this; only 46% of workers have tried. An old rule suggests you’ll need 70% of your pre-retirement income, but this varies per individual.

Start with your current monthly expenses. Here’s a sample budget with national averages for reference:

CategoryNational AverageYour Average
Apparel and services$146$____________
Total $4,786$____________

Step 2: Identify Your Income Sources

Where Will Your Income Come From?

List all your retirement income sources besides Social Security, such as:

  • Distributions from IRAs, 401(k)s, and other retirement accounts
  • Company-funded pension plans
  • Savings and investments
  • Employment income

Calculate the total income from these sources. Subtract your estimated expenses from your total income. If there’s a shortfall, Social Security can help fill the gap.

Step 3: Get a Social Security Benefits Estimate

How to Get an Estimate

Your Social Security benefits depend on your average earnings and the age you start taking benefits. Early filing at age 62 reduces your benefit. Filing at full retirement age gives you a higher benefit, and delaying past full retirement age increases it further until age 70.

To get a personalized estimate, visit ssa.gov and access your Social Security statement with a “my Social Security” account.

Evaluate Your Situation

What if You File Early and Regret It?

If you file early and realize you don’t need the income, you can withdraw your application within the first 12 months, repay the benefits, and reapply later for a higher benefit. This option is available only once.

Commonly Asked Questions

  1. When should I take my benefit? Are my options only age 62 or full retirement age?
    You can file at any age between 62 and full retirement age, and even beyond. The longer you wait, generally, the larger your benefit will be.
  2. Do I have to take my benefit by full retirement age? Can I wait longer than that?
    You can delay taking your benefit past full retirement age. Doing so increases your benefit by up to 8% per year until age 70.
  3. Can I file and continue to work?
    Yes, but if you work before reaching full retirement age, your benefit might be reduced due to income limits. It’s important to consider this before enrolling.
  4. What if I decide to go back to work after reaching full retirement age? Will my benefit be reduced?
    Once you reach full retirement age, your benefit won’t be reduced if you continue to work.
  5. Must my spouse and I choose the same options/timing?
    No, you and your spouse can choose different options and timing for your benefits. It’s important to develop a strategy that suits both of your needs.
  6. Is my Social Security taxable?
    Your benefit may be taxable depending on your combined income. Consult a tax professional to understand your specific situation before enrolling or filing.
  7. Shouldn’t I just enroll as early as possible in case I pass away?
    While it’s not pleasant to think about, filing early means a lower benefit for life. If you live a long time, this lower benefit will persist. Additionally, if you pass away early, your spouse might receive a lower survivor benefit than if you had waited longer to file.

Key Points to Remember

  1. Calculate Expenses: Understand your monthly retirement expenses.
  2. Identify Income: Know your retirement income sources and amounts.
  3. Estimate Benefits: Use your Social Security statement to estimate benefits.

Work with your financial and tax professionals to make the best decision for your financial future.

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