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Claiming Social Security? What You Need to Know

Social Security

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If you’re eligible for Social Security, those monthly benefits may be a big part of how comfortable your lifestyle is once you retire. However, making the most out of your benefits requires some knowledge and good decision making, as described in this recent article “4 Must-Knows Before Claiming Social Security” from The Motley Fool.

What’s Your Full Retirement Age—Your “FRA”? When you start taking benefits will have a big impact on the amount of your benefits. If you wait until your FRA, you’ll get your standard benefit. Born between 1943—1954? Your FRA is age 66. If you were born after 1967, your FRA is 67. If you were born between 1955 and 1959, you’ll want to check with the Social Security Administration to be 100% certain.

You become eligible to take your Social Security benefits once you turn 62. However, the benefit is reduced for every year that you take it early. Another option is to take it as late as age 70. Your benefits will grow for every year you wait. Let’s say your standard benefit would be $2,200. If you take it as early as age 62, it will be $1,650. If you wait to age 70, and it leaps to $2,900. Waiting could make the difference between paying and not paying some bills.

How Long Will You Live? This is the $20 million question. Family longevity and overall health could give you a higher probability of living a long life, but there are no sure answers. If you start taking benefits at age 62 and live to age 75, the total amount in benefits will be $257,400. If you take benefits at age 66, you’ll get $237,600. If you wait until age 70 to claim benefits and live to age 75, you’ll get $174,000.

A longer life means larger numbers. Live to age 80, you will get $365,000 if you start at age 62, $369,000 if you start at age 66, and $348,000 if you start at age 70. Live to age 85, and you will get $455,400 if you start at age 62, $501,600 by starting at age 66, and $522,000 if you wait until age 70.

How Much Have You Saved for Retirement? Social Security makes up about 40% of retirement income for the average American. If you’ve got a pension, consider yourself lucky. The more income streams, the better. If your expenses during retirement are, let’s say, $40,000 a year, and your income is $20,000, then you’ll need an additional $20,000 to keep your bills paid. Studies on investments and retirement (and there are many of these) report that if you have a traditional 60% stocks and 40% bonds investment portfolio, you risk running out of money in retirement, unless you keep withdrawals at no more than 4% of your total account value. An investment account of $500,000 that yields $20,00 annually—is a start. Most Americans do not have that much in retirement savings.

Will You Need or Want to Work During Retirement? Working during retirement is a necessity for some. for others, it’s a way to get out of the house and socialize. If you have $40,000 in expenses and receive $20,000 from guaranteed income streams, the $10,000 earnings from a part time gig could lower the amount you’d need to pull from retirement savings.

There’s a downside to working during retirement. If you work too much, Social Security will decrease your monthly payments based on your income. If you are considering taking Social Security early while working, make sure to check the numbers, so you aren’t getting hit with penalties.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: The Motley Fool (June 7, 2021) “4 Must-Knows Before Claiming Social Security”