How Does Social Security Affect Your Financial Plan?

Maura Schauss |

Have you wondered how Social Security will affect your overall financial plan? Although the federal government created Social Security during the Great Depression as a retirement safety net, benefits now cover an estimated 96% of Americans, which is why it’s important to understand the basics of the program and devise strategies to tie your benefits into your retirement plan.

Today, Social Security benefits make up an average of 40% of a typical retiree’s income. Because your Social Security benefit is calculated using your earned income throughout your career, the compensation can be significant, even for the affluent.

How Much of An Impact Will Social Security Make?

Let’s look at the numbers. While the average Social Security retirement benefit payment is about $1,300 per month, the maximum benefit at full retirement age for 2016 is $2,639 per month. For those who wait until age 70 to start receiving payments, the maximum monthly payment for 2016 is $3,576.

As Social Security payments increase with Cost of Living Adjustments, the monthly benefit will continue to escalate throughout your retirement. Even if your retirement plan doesn’t rely on Social Security, the benefits you receive can be invested or gifted to your heirs.

For someone who has reached full retirement age with an average life expectancy, the maximum total value of lifetime Social Security payments is estimated to be about $572,000 for men and $683,000 for women1. It’s critical to plan ahead to maximize your total lifetime benefit and aim to use the asset as part of your overall financial plan.

Crucial Claiming Decisions

There are two essential claiming decisions you need to consider to optimize your total lifetime benefit. First, you’ll need to decide when to start receiving benefits. Second, you’ll need to determine how to claim spousal benefits to maximize the entire lifetime payments for both spouses.

When To Claim Benefits

Social Security benefits can be claimed anytime between ages 62 and 70. However, the timing of when you decide to collect these benefits will impact the amount of payout you receive. If you choose or are forced into an early retirement, you can begin receiving Social Security benefits as soon as age 62. However, if you file to obtain benefits any time before reaching your full retirement age, you will get a reduced amount.

If you wait until you reach full retirement age to begin collecting your social security benefits, you will receive your full Primary Insurance Amount, which is the full benefit that you have earned. If you don’t need your Social Security benefit at full retirement age, you can also delay receiving your benefits. For each year that you wait, your benefit will increase approximately 8%, to a maximum possible increase of approximately 32%. Your benefit will only increase until you begin receiving it or you turn 70, whichever happens first.

Spousal Benefits

Deciding how and when to claim spousal benefits may depend on your overall financial strategy and individual situation. In general, the lower earning spouse may choose to collect benefits early, while the higher earning spouse aims to wait as long as possible. By employing this strategy, a couple can make use of the lower benefit sooner while maximizing the increased benefit for the future.

If the husband has the greater benefit, the woman may claim first. Because women tend to live longer than men, this strategy can not only maximize the husband’s retirement benefit for use while he is alive but also maximize the wife’s survivor benefit when he passes away.

Social Security and Your Retirement Plan

Your Social Security benefit is a unique asset because the payments are guaranteed by the government to last throughout your lifetime. The benefits also take inflation into account. Unlike some other assets, the value of your Social Security benefit increases with inflation. Because your Social Security asset behaves differently than other investments within your portfolio, the total benefit and claiming strategy should be considered when investing your other retirement resources.

If you have questions about how Social Security benefits tie into your overall financial plan, contact us today at (703) 584-2700 or email us at to schedule an appointment to sit down and discuss your unique needs.  

About Washington Wealth Advisors

Washington Wealth Advisors is an independent registered investment advisory firm serving high net worth families and small businesses. We focus on holistic financial planning and comprehensive investment management. Leveraging our core strengths of unbiased, active investment management together with a detailed annual financial planning capability, we serve your comprehensive investment and financial planning needs.