Social Security can be a great source of income during retirement. For some, though, it can provide disappointment; knowing what to expect before applying for benefits is half the battle.
At NW Tax & Wealth, we work with individuals and couples every day whose retirement objectives include benefiting from Social Security. If you’re considering beginning to claim your benefits, know these five things first:
- Waiting to withdraw can change everything.
Nearly every retiree knows there are financial advantages to waiting to withdraw your Social Security benefits. Most, though, don’t realize how big these advantages really can be. Did you realize that your retirement benefit could be 25-30% higher if you wait until full retirement age (either 66 or 67, depending on when you were born) than if you take it out when you’re only 62? Furthermore, waiting up to four years past “full retirement age” can increase your benefits upwards of 8% each additional year. That’s real money.
- Your years worked factors into your payments.
Did you realize that your Social Security benefits are calculated on the 35 years during which you earned the most? If you don’t work for 35 years before claiming benefits, zeros are averaged in which results in a smaller payout. Hitting that thirty-five year mark should be a factor when considering whether or not to wait to withdraw or to go ahead and begin payments.
- Spousal benefits can really add up.
Social Security’s spousal benefits and claiming options are notoriously complicated and best navigated with the help of a qualified tax advisor, although a financial professional can provide you with the general information you may need to help you understand how these claiming strategies work. Most people don’t realize, for example, that spousal benefits come into play in the event that one spouse stayed home to raise kids, or even after a divorce. Couples have myriad strategies available to potentially boost their Social Security benefits.
- Lump sum payouts reduce your residual payments.
Although the Social Security Administration allows people to take up to six months’ worth of payments retroactively, they consider this kind of payout the same as if you filed for benefits six months earlier. This will result in decreased payments long term for the remainder of your tenure on Social Security. If you need a lump sum of cash for a mortgage or even health issue, talk to your financial professional about your alternatives.
- You have to factor in your life expectancy.
Although there is no way to predict the future, it’s critical to consider how long you expect to live after claiming your benefits. If you’ve got lots of centenarians in your family and are in excellent health, waiting longer to claim benefits is likely an option that makes sense for you. Likewise, know that couples don’t have to claim their benefits at the same time, so if you or your spouse has an adverse health condition, factor that in when determining when each of you should apply.
Social Security benefits are complicated, but they don’t have to be. Working with a financial professional you trust can help to ensure you’re getting all the information you need before to making a sound financial decision with your qualified tax advisor.
It’s time you used social security to your advantage. Let NW Tax & Wealth help.
By contacting NW Tax & Wealth, you may be offered information regarding the purchase of insurance products. All of our financial professionals are licensed insurance agents. Additionally, some individuals may also be registered with a broker/dealer or as an investment adviser.
Information provided is not intended to be legal or tax advice. NW Tax & Wealth can provide information, but not advice related to Social Security benefits. For more information, contact your tax advisor, attorney, or the Social Security Administration regarding your particular situation.
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