Deciding when to start social security is one of the most important retirement planning decisions you'll make. There are a number of factors to consider, and the decision can have a significant impact on your financial security in retirement. This article outlines the key things to think about when making your decision.
When should I start social security? Variables and factors to consider
When it comes to social security, there are a lot of variables to consider. Perhaps the two most important are longevity and health. Longevity is important because the longer you live, the more likely you are to collect social security benefits. How long did your mom and dad live? How about your grandparents? Health is important because if you're in poor health, you may not live long enough to collect benefits. Other important variables include your income level, whether or not you have a pension, and your age. Ultimately, there's no one-size-fits-all answer when it comes to social security, and you'll need to weigh all of the variables before making a decision.
If you have poor health, you may want to consider taking social security as early as possible. While you will receive a smaller monthly benefit if you start receiving benefits at age 62, you will receive those benefits for a longer period of time. If you wait until full retirement age or later to start receiving benefits, your monthly benefit will be higher, but you will receive it for a shorter period of time. In addition, if you have a life-threatening illness or are not expected to live for more than a few years, taking social security early may be the best option for you. While there is no one-size-fits-all answer to this question, it is important to talk to a financial adviser to get an idea of what makes the most sense for your individual situation.
If you're still working and thinking about starting social security, there's an earnings test you should be aware of. If you make more than $19,560 per year, your benefits will be reduced by $1 for every $2 you earn over that amount. So if you're still working and earning a good income, it may not make sense to start social security just yet - you could be leaving money on the table. However, if you have other sources of income and aren't expecting to earn much more than $19560 per year, starting social security may be a good idea. If you will reach full retirement age in 2022, the earnings limit on the months before you retire is $51,960. When you reach full retirement age your benefits will no longer be subject to the retirement earnings test.
Most people dream of a long and prosperous retirement, but the reality is that many Americans are not financially prepared to retire comfortably. Social Security is a vital part of most retirees' income, and while the program has been successful in providing a basic level of financial security for seniors, it is not designed to provide a comfortable standard of living. For this reason, more and more experts are recommending that people delay claiming Social Security benefits until age 70.
Although this may seem like a daunting prospect, there are several good reasons to consider delaying benefits. First of all, age 70 is when you become eligible for the maximum benefit amount. Secondly, delaying benefits will also help you to do more planning like Roth conversions in lower tax brackets. Finally, by waiting to claim benefits until age 70, you are giving yourself the best chance possible of having a comfortable retirement. So although it may be tough to wait a few extra years to start collecting benefits, doing so could pay off in the long run.
Factors to consider:
One factor to consider is whether you are eligible for a spousal benefit. If you are married, you may be able to receive a spousal benefit even if you have never worked or if your own benefit is less than your spouse's. If you are considering starting your own benefit early and adding on the spousal benefit later, there are a few things to keep in mind. First, you must be at least 62 years old to be eligible for your benefit and the spousal benefit. Second, your spouse must already be receiving social security benefits for you to receive the spousal benefit. If both of these conditions are met, then starting your own benefits early and adding on the spousal benefit later may be a good option for you.
Another factor that you may be considering is the value of your investments. If the markets have been down recently, you may be wondering if it's a good time to start receiving benefits. It's important to keep in mind that Social Security is designed to supplement your other sources of income, such as investments and pensions. It's not intended to be your sole source of support in retirement. As a result, the performance of the markets should not be the only factor you consider when making your decision.
Another factor to consider is whether you have other income sources. Many people rely on social security benefits as their primary source of income in retirement, but this may not be the best financial strategy. While you are technically eligible to begin receiving social security benefits at age 62, doing so will result in a reduced monthly benefit. For every year that you delay claiming benefits, up to age 70, your benefit will increase by about eight percent. Therefore, it's important to consider whether you have other sources of income that can help support you until you reach full retirement age. If you do have other income sources, you may want to consider waiting to claim social security benefits in order to maximize your monthly payments.
The last factor to consider is the projected shortfall in funding. If you are worried this article might ruin your day, skip to the last concluding paragraph. According to the Social Security Trustees, the program is expected to run out of money in 2034. After that point, it will only be able to pay out 77 percent of benefits. This shortfall is caused by several factors, including the retirement of baby boomers and longer life expectancy. The good news is that there are steps that can be taken to fix the problem. For example, Congress could increase payroll taxes or reduce benefits. However, any changes will need to be made soon to avoid severe disruptions to the program.
The Social Security program is one of the largest and most important federal programs. It provides retirement, disability, and survivor benefits to workers and their families. The program is primarily funded by payroll taxes levied on workers' earnings. In 2021, these payroll taxes brought in about $1.1 trillion, or about 86 percent of total program revenue. The remainder of funding comes from interest earned on the Social Security trust fund assets and from taxation of benefits. We went into a deficit for the first-time last year in 2021. The aging of the baby boom generation and increasing life expectancy are putting strain on the program's finances. Currently families aren’t having as many children. Hence,
there will be fewer workers paying into the system. This is expected to cause a shortfall in funding starting in 2034. To address this issue, lawmakers may need to consider options such as raising payroll taxes, reducing benefits, or both. Regardless of the solution that is ultimately adopted, it is clear that the Social Security program will have a significant impact on federal taxes for years to come.
Social security is an important decision that has a significant impact on your future. We hope this article has helped you better understand when to start social security and the factors that affect your decision. For more information or assistance, please contact our team of professionals.
Sean West, Wealth Management Advisor/ CFP®
Disclosure
This blog reflects the personal opinions, viewpoints and analyses of the White Cloud Wealth Management employees providing such comments, and should not be regarded as a description of advisory services provided by White Cloud Wealth Management. The views reflected in the blog are subject to change at any time without notice. Nothing in this material constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security.