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Introduction to Social Security Planning  

As more and more Baby Boomers begin to retire, the issue of Social Security planning is becoming increasingly important; yet, regrettably, many retirees or soon-to-be-retirees fail to engage in the Social Security planning process. Perhaps you find yourself in this situation. Regardless of the assets at your disposal, considering available Social Security strategies can yield tremendous long-term financial benefits. If you have an ample nest egg, deferring and thereby maximizing Social Security benefits may be quite wise in certain instances. In fact, in this situation, Social Security decisions can have an impact on your survivors as well if that is a concern in your estate plan. If you find yourself with a more limited nest egg, you may also benefit from closely coordinating your retirement dates, distributions from investment assets, and turning on retirement benefits from Social Security.

If you have not started planning your retirement strategies, including your Social Security strategies, you certainly are not alone. The sooner you begin to analyze your options; however, the better served you will be during your retirement years. If you are like many retirees, you may question where to start in the Social Security planning process. We understand the confusion inasmuch as there are a number of considerations. It is important for you to understand several key issues as you make Social Security decisions:


  • How benefits are determined
  • Available Social Security strategies
  • Your personal situation

Determination of Social Security Benefits

Before learning more about Social Security strategies and considering your situation, it is important to understand how your Social Security benefits are calculated. According to the Social Security Administration, there are several factors that determine your monthly benefit amount in retirement:

  • The number of years during which you worked, earned income, and had Social Security deductions.
  • Your earnings subject to Social Security taxes during your working career, specifically the thirty-five years with the highest earnings.
  • Average Indexed Monthly Earnings
  • A formula utilized to calculate your Primary Insurance Amount (or PIA). This formula is based upon the national average wage index.

While the nuts and bolts of the actual calculations are rather complex, it’s important to understand conceptually that the longer you work and the more you earn (up to a certain ceiling) has an impact on the monthly benefits you may receive when / as you elect to collect your Social Security benefits.

The factors the Social Security Administration utilizes to calculate your PIA and the resulting monthly benefit are not entirely within your control. Fortunately, there are methods you can use to maximize your benefits even if your work experience and salary are not on your side in the benefit calculation process.

Social Security Strategies

Because many people do not have a plan for taking Social Security benefits, they make some unnecessary mistakes that cost them dearly. One popular mistake people make is taking Social Security as soon as they are eligible. What these retirees might not realize is that their benefits are cut by 25% if they elect to take benefits at age 62. Over the course of a long retirement, especially as people live longer and longer, this reduced benefit could mean tens or possibly even hundreds of thousands of dollars in benefits relinquished. It is generally wisest to defer your benefits at least until your full retirement age unless your personal financial situation cannot accommodate waiting.

Furthermore, many retirees do not realize that their benefits increase by 8% annually for each year they defer benefits after their full retirement age to age 70. A guaranteed 8% return certainly is not something about which to complain! Yet, many people forgo thousands of dollars over the course of their retirement by failing to take advantage of this wonderful potentiality. We often encourage our clients to utilize this strategy with their Social Security benefits, especially when other assets are available to provide financial support before the benefits begin.

For married individuals, coordinating Social Security benefits is quite crucial in maximizing the couple’s benefits. If you have heard of file and suspend, you may know that this extremely advantageous strategy for couples is no longer available. For retirees born before January 1st, 1954, however, the ability for one spouse to file for restricted benefits is still a possibility. With the Restricted Strategy, one spouse files for benefits at Full Retirement Age while the other receives spousal benefits until age 70, allowing their own benefit to grow at 8% per year. At age 70, the spouse who filed for a restricted benefit switches over to their own benefits. As you might imagine, this can also provide thousands of dollars in additional benefits over the course of a retired couple’s retirement years.

There are many additional facets to Social Security planning. You may want to consider your other income sources, distributions from retirement accounts, and many other factors as you weigh how to maximize your Social Security benefits. As you have likely ascertained, Social Security planning can truly prove beneficial. Nevertheless, your unique situation will ultimately define the best strategy for you.

Consider Your Situation

When is the right time for you to turn on your Social Security “spigot”? As noted previously, the answer will be different depending upon your situation. There are many key issues we encourage our clients to consider. For example, if you and/or your spouse are in ill health, it may make sense for you to take retirement benefits earlier since it will take longer for you to hit the “break-even point” for a strategy where you take benefits later but receive a higher benefit. Alternatively, should one or both of you be working and in good health when you are 62, it likely makes sense for you to defer your benefits. The size of your investment portfolio, available savings, and debt load could also impact when you elect to take your Social Security benefits.

For individuals with adequate assets and the absence of longevity concerns, it often makes sense to defer benefits. Not only does deferring Social Security potentially provide increased benefits, but it also helps you avoid a phase-out of your wages if you continue to work through your Full Retirement Age. Everyone’s situation is different; however, so we encourage everyone to give careful thought to the unique factors that will likely serve to influence their Social Security plan.

Your Social Security Plan   

Regardless of age or net worth, everyone needs to have a plan for their financial resources. Since Social Security plays a pivotal part in most people’s plans and is an area where costly mistakes are all too easy to make, hiring a competent financial adviser who shares your values is extremely wise. In Proverbs 15:22, King Solomon says that: “Without counsel plans fail, but with many advisers they succeed.” We believe this is true in every area of your life, financial matters included.

If you have questions about Social Security or want to speak with a financial adviser regarding any financial matter, we would be honored to serve you. You can reach out to our team at service@semita-am.com. Alternatively, you can click the “Schedule a Conversation” link if you would like to talk to one of our advisors about the services we have to offer, including our Social Security planning capabilities. We are honored to help people like you answer the important stewardship questions of life.

Keywords: Social Security Planning  

Disclaimer: This content, edited and provided by Semita Asset Management, is intended to be educational and informational in nature. It should not be construed to guarantee any particular investment outcomes, nor should it be deemed to be tax or legal advice. Investing in the stock market involves risk for the investor, including the potential for loss of some or all of the investor’s principal. Certain statements made herein may be forward-looking in nature. While we do our best to clearly present advice based upon reasonable research, assumptions and knowledge, we do not guarantee that our predictions or suggestions will hold true in the future. Past performance is not necessarily indicative of future performance.

In preparing this information, we have attempted to present accurate information from our knowledge and sources. Nonetheless, we do not make any guarantees or warranties, expressed or implied, as to the accuracy of this information. Additionally, this information may not be entirely current and is subject to regular change. For the most current advice, we strongly urge you to consult with knowledgeable investment, tax and legal professionals who provide advice. We will not be held liable for any loss resulting from the implementation of the advice herein contained.