Social Security is an often-confusing topic for pre-retirees. There are a lot of questions around when it’s best to start taking your Social Security benefit, whether or not your spouse (or ex-spouse) will receive support after you pass away, and what size of benefit you can expect throughout retirement.
The truth is that Social Security isn’t going to be your end-all-be-all solution when it comes to creating a retirement income. It’s part of a laundry list of retirement revenue streams that will sustain you and your spouse or partner well into your golden years. However, it’s still important to understand how this program works ‑ and what type of benefit you can anticipate as you start building your retirement plan.
When Can You Start Taking Social Security?
According to the Social Security Administration, you can start taking benefits as early as age 62. However, the “full” retirement age to receive your full benefit is 66 years old, or 66 years old plus additional months, if you were born between 1943-1959. If you were born in 1960 or later, your full retirement age is 67.
If you choose to take your Social Security early, and your Full Retirement age is 66 (born between 1943 to 1954), you can expect the following benefit reduction percentages throughout retirement:
- Age 62 ‑ 25% reduction
- Age 63 ‑ about 20% reduction
- Age 64 ‑ about 13.3% reduction
- Age 65 ‑ about 6.7% reduction
If you were born 1955 and later, there are similar reductions however, they are slightly larger.
Although you can start taking Social Security at 62, some people prefer to wait until after their full retirement age to start taking Social Security benefits. This happens for a wide range of reasons ‑ some people prefer to continue working beyond their full retirement age, and some people just have enough cash flow without their Social Security benefit and prefer to put it off. If you choose to delay taking your benefit past your full retirement age, your monthly Social Security payment will increase based on:
- Your date of birth
- The number of months you delayed your benefit
Knowing when the “right” time to take Social Security is can be a challenging road block to navigate as you head into retirement. Working with a team of financial planners can help you to build a retirement plan that includes balancing your savings, with maximizing your benefit from the Social Security Administration.
How Do Spousal Benefits Work?
To qualify for Social Security Spousal Benefits, you can be either a current spouse, or an ex-spouse (as long as you were married for 10+ years, and didn’t remarry before age 60). You have to be at least 62 years old to start receiving spousal benefits.
Typically, as a spouse (or ex-spouse), your spousal benefit will provide you 50% of your spouse’s Social Security benefit.
If you’re a widow or widower, you may be eligible to receive a benefit ‑ called a survivor’s benefit. You can collect a survivor’s benefit as early as age 60 (or age 50 if disabled). To qualify for a survivor’s benefit, you need to have been married at least 9 months (waived if death is accidental), be a widow or widower or a divorced surviving spouse and have not remarried before age 60. In general, the survivor’s benefit is 100% of the deceased spouse’s benefit. Benefits are reduced if the deceased spouse had or surviving spouse chooses to file early.
It’s important that married couples keep in mind that they can receive their own benefits, or their spouse’s/survivor’s benefits, but not both simultaneously. This adds another layer of planning into the mix.
For example, taking a survivor’s benefit for a few years to delay your personal benefit ‑ then switching to take your (now larger) personal Social Security benefit after your full retirement age ‑ might be able to get you more income over the course of your retirement. Every situation is unique, and it’s important to talk through all of your options, and to create a strategy that’s customized to you and your partner.
How Can You Estimate Benefits?
The Social Security Administration offers a unique benefit estimating tool on their website. Although the tool truly only gives estimates (true numbers can’t be determined until you apply for Social Security), it can be useful to understand a ballpark figure of what you can expect during retirement.
If you’re in the middle of retirement planning, and are looking for a bit more of an exact answer about your expected Social Security benefit, you can also look at the Social Security Detailed Calculator. This tool is much more in depth, and allows you to access actual earnings record ‑ which makes for a more precise estimate of benefits.
It’s also worthwhile to take a look at your Social Security Benefits Statement. In previous years, the SSA would send out updated information about your statement through snail mail. Now, however, they house all of this information in an online portal at the mySocialSecurity website, to increase ease of access.
Don’t let Social Security planning overwhelm you! At Manchester Financial, we’re Powered By Planning®. That means we believe in planning for your prosperity, and in helping you create a financial strategy that guides you toward your biggest, most exciting goals. Social Security is a big part of your retirement income, and helping you to design a plan for taking your benefits can impact your taxes during retirement, your cash flow, and your ability to live the retirement lifestyle you’ve always dreamed about.
Interested in learning more? Reach out to us today. We’d love to help you.