How Does Social Security Affect Your Financial Plan?Submitted by Washington Wealth Advisors | Falls Church and Ashburn, VA on September 19th, 2016
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.
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 email@example.com 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.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Washington Wealth Advisors, LLC), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Washington Wealth Advisors, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Washington Wealth Advisors, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Washington Wealth Advisors, LLC’s current written disclosure statement discussing our advisory services and fees is available for review upon request. Please Note: Washington Wealth Advisors, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Washington Wealth Advisors, LLC’s web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.