By Paul S. McNulty, CFP®
Have you wondered how you can optimize your Social Security benefits so they enhance your financial plan? Do you worry that you don’t know enough about how the program works to make an informed decision? If so, you’re not alone.
More than half of Americans don’t fully understand Social Security (1) and how their benefits may change. This isn’t surprising given that, in addition to the many moving pieces beneficiaries must consider, Social Security rules and regulations often change.
But Social Security is an essential part of most Americans’ retirement plans. In fact, 57% of retirees in 2019 reported that Social Security benefits made up the majority of their retirement income. (2) For this reason, it’s more important than ever that you understand how Social Security benefits affect your financial and retirement planning.
Unique Aspects Of Social Security
Social Security is such an important part of your financial plan because there are unique aspects to these benefits that other income sources don’t have. For example, Social Security benefits are guaranteed to last your lifetime. If you’re lucky enough to live past your estimated longevity and enjoy more time with your loved ones, your Social Security benefits will never run out, unlike other investments that you’ve saved from your working years.
Additionally, your Social Security payments will increase with cost of living, due to a provision called the Cost-of-Living Adjustment (COLA). COLA increases are evaluated annually to coincide with inflation, so in 2020, COLA adjustments are at 1.6% for those currently receiving Social Security payments. This is an excellent provision and extra protection afforded to you, as your investments and other income sources will not increase with cost-of-living expenses.
Complexities Of Social Security
Keep in mind that deciding when to apply for Social Security can impact your overall financial plan in several ways. With many moving pieces to take into account, it’s important that you work with a financial planner to evaluate different scenarios and develop a plan to optimize your Social Security benefits in tandem with other aspects of your financial plan.
Most people know that the longer you wait to apply for Social Security, the more your payments will increase. But it’s not always best to wait until age 70 (the age when your payments will reach their maximum amount). For some, it’s more important to start taking benefits at the full retirement age (FRA) given their life expectancy or the needs of their spouse.
Spousal benefits are impacted by the age you apply for Social Security benefits. Should you choose to apply for benefits early (which some pre-retirees choose to do for a variety of reasons), your spouse’s benefits could be permanently reduced to as little as 33% of your overall benefits.
Another consideration is how your Social Security benefits may interact with other sources of income, because this can have major implications for the amount of benefits you receive or how you’re taxed during retirement. If you’re working while collecting Social Security, your benefits could be withheld based on the amount of your income. And if you’re not working, strategically structuring your other investments can minimize your Social Security tax burdens.
Social Security is a complex program, but most Americans agree that they do not want the program reduced or cut in any way. (3) The Social Security Administration evaluates the Social Security program every year, and announces its changes for the coming year every October. The constant changes to rules and regulations mean that average Americans are not always aware of changes that take place, even though these changes may have an enormous impact on their financial plan.
How We Can Help
When it comes to Social Security benefits, you don’t want to leave it to chance and simply hope for the best. Having an objective financial planner who is well-versed in the complex and changing regulations of Social Security will give you the confidence you need to develop a financial plan that optimizes your Social Security benefits and makes sure your total financial picture is all working together.
At Boston Metro Advisor, we want you to feel confident and excited about retirement. If you desire this as well, contact us for a complimentary consultation by calling (781) 995-0253 or email me directly at [email protected]!
Paul McNulty is the founder of Boston Metro Advisor with over 20 years of experience helping people navigate the ups and downs of the economy toward the financial future they envision. His education consists of a Bachelor of Science in business administration from the University of Rhode Island and the CERTIFIED FINANCIAL PLANNER™ (CFP®) professional designation.
Paul’s experience and education have made him a multi-faceted professional capable of assisting people with virtually all their financial needs. His services include every facet of retirement planning, from 401(k) rollover services and income planning to wealth management and estate planning. Paul has been active in his community over the years as a youth sports coach. When he’s not spending time with his wife, Cindy, and their two children, who are both recent college graduates, Paul enjoys reading, playing golf, and fishing. Learn more about Paul by connecting with him on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.