We’ve all been experiencing a lot of changes lately, but questions surrounding Social Security are nothing new. In the past, the uncertainty has been about its funding (we address that in this video: CLICK HERE), but with recent events, questions about how Social Security fits into our overall financial plan have become even more personal.
To back track, according to the Social Security Administration’s website, the program was developed for the following reasons:
- To provide for the material needs of individuals and families;
- To protect aged and disabled persons against the expenses of illnesses that may otherwise use up their savings;
- To keep families together; and
- To give children the chance to grow up healthy and secure.
Among the many programs that are included within Social Security, retirement insurance, survivor’s insurance, and disability insurance are the ones that people are most familiar with. However, what confuses many people is how these benefits fit in with their financial future.
Originally, Social Security benefits were designed to be only one leg of a 3-legged stool when it came to retirement planning. Those three legs are:
- Social Security
- Pension
- Investments
But times have changed – in fact, many people 35 or younger are not even including Social Security in their retirement planning because they’re unsure that the program will exist by the time they’re old enough to draw from it. However, for those who are closer to retirement, these benefits can greatly impact their financial plan.
Your Social Security Benefits and Retirement
When I begin putting together a Retirement Roadmap for clients, one of the first questions I ask is, “Would you like me to include your Social Security benefit estimates in your Financial Roadmap assumptions?” As I mentioned above, some people do, and some people don’t.
For those who do, it’s important for them to understand that when they draw upon these benefits is just as important as how much they’ve contributed. I’ve found that many clients nearing retirement get a little antsy about claiming their benefits, and I don’t blame them! After all, they’ve been paying into the program for the majority of their lives.
This has been especially true during the pandemic; people have a heightened sense of their own mortality and are feeling the pull to file for these benefits earlier than they might have before. Some are also thinking about retiring earlier than they originally planned.
I understand the thinking behind both scenarios, but when it comes to Social Security sometimes waiting a few years can make all the difference.
When should you file for Social Security?
Many people pull the plug too early which means they’ll likely receive reduced benefits. For example, if you start receiving Social Security at age 62, your benefit will be 30% less than if you wait until full retirement age.
Thirty percent.
Something else to keep in mind: If you were born in 1943 or later, for each year you delay receiving your Social Security income, your benefits increase 8% per year up to age 70. Think of it this way: How many investments do you know of that will provide an 8% return each year?
Of course, there are exceptions to this “rule.” If you find yourself disabled and unable to work and savings and investments are not available, drawing from your Social Security benefits and receiving a lower amount might be necessary. But in many cases, when to claim those benefits might be something you want to talk to a professional about.
How we can help
While it might seem like financial planning is just about the numbers, decisions surrounding your finances can be very emotional. When clients come to us, we discuss things they might not have considered such as…
- Family longevity
- Health status
- Their breakeven age
…to help determine the best time to start receiving SS benefits.
If this is something that’s been on your mind, but you don’t know where to start, CLICK HERE to make an appointment. Together we’ll go over the pros and cons of either delaying the income or electing to start your benefits at the right age for your plan. Always remember that when it comes to creating your Financial Roadmap, you’re not alone. Charpentier Wealth Strategies is always available to answer your questions.
Debbie Charpentier has been serving clients since 1989 by using a holistic, comprehensive approach that helps clients create the life they value and the legacy they envision. Charpentier Wealth Strategies is a Bakersfield, CA Financial Planning practice that offers fee-based financial planning services. To contact Debbie, email Debbie.Charpentier@LFG.com. http://charpentierwealth.com/ Debbie Charpentier is a registered representative offering securities and investment advisory services through Lincoln Financial Advisors Corp., (Member SIPC). Charpentier Wealth Strategies is not an affiliate of Lincoln Financial Advisors. CRN-3174776-072320