Implications of the Social Security Start Date
Effectively planning one’s retirement often requires going beyond the question of the extent to which that retirement is funded. It involves mapping the logistical intricacies of a puzzle with many moving parts, each with financial, tax, and estate ramifications. The initiation of Social Security benefits is a piece of this puzzle. Consider the key issues:
The pre-requisite to receiving Social Security benefits is to work and pay taxes for 10 years.
Social Security benefit amounts are based on income, years worked, and the age benefits begin. The retiree’s most financially beneficial ‘start date’ results in the maximum lifetime benefit, including inflation and the time value of money. Advanced retirement planning programs can run these calculations and convey results in simple terms.
Full benefits are received at Full Retirement Age (FRA), which for most people is age 67. Benefits can commence as early as age 62. The earlier benefits begin the lower the monthly amount is, but benefits also continue to increase after FRA until age 70, as this chart shows:
Claiming Age Benefit Adjustment¹
62 -30%
65 -13.3%
67* 0%
68 8%
70 24%
*Full Retirement Age
It’s noteworthy reduced benefits for pre-FRA claims compound indefinitely, even for surviving spouses; in other words, annual increases are based on the reduced monthly benefit, and are, therefore, also proportionately lower.²
Genes and longevity, lack of program funding and the possibility of future ‘means testing’, age/benefit charts, and other income sources all factor into the strategic and important decision of when to initiate Social Security benefits.
The decision to initiate Social Security benefits will likely impact: i) the allocation of your retirement capital, ii) the decision of when to initiate income streams from investment accounts, iii) your withdrawal and depletion rates on those investment accounts, iv) your tax return the year benefits begin and thereafter, and v) the ultimate value of the estate you leave to your beloved heirs. Put your time in on this one, and blessings on your decision! Don’t be afraid to ask for help, and be quick to share your success with those in need.
Think about it, Shaun.
“Give, and it will be given to you. Good measure, pressed down, shaken together, running over, will be put into your lap. For with the measure you use it will be measured back to you.” ~Luke 6:38
1,2 Smart Asset, “Social Security Benefit Reduction for Early Retirement Chart”, August 3, 2023, written by Mark Henricks
The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.
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