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Social Security: What You Don’t Know May Hurt You

October 26, 2018 by The Trust Company of Tennessee

social security

During retirement planning, there are many considerations and an important one is social security. You may be asking yourself questions like: When should I claim social security? Should I collect my social security as soon as I’m eligible?  After all, I did pay into it all these years, so I’m entitled to it, right?  Besides, it may run out so why not collect what I can as soon as I can?

It’s critical to know the answers to these questions as a lack of knowledge can hurt you. Let’s take a look at some of the common questions surrounding social security and the answers.

Should you collect social security as soon as possible? Probably not, and here’s why:

  • It’s beneficial not to claim your social security unless you are not working and in bad health. Even if you are in bad health, if you are married and the higher wage earner, you probably shouldn’t collect early if your spouse will need the higher income.
  • Why not? The benefit is reduced for collecting prior to your full retirement age (66-67 for those born 1943 or later).
  • The shorter your life expectancy, the better off you are collecting early. However, life expectancies have been increasing and the majority of people will live past the breakeven age.

If you work past your full retirement age (66 or 67 for most people), you can collect without being penalized.  But, should you?  Probably not, for these two reasons:

  • That income will likely be taxed at a higher rate than it will be when you stop working.
  • You get an 8% increase for each year you delay until age 70. Where else can you get 8% guaranteed?  Nowhere!

If you aren’t working, it may make sense to delay social security and convert some of your pre-tax IRA at no or low cost to a Roth where it will grow tax-free perpetually.

Social security will not run out of money. It is projected to have a shortfall, which simply means more is being paid out than is coming in. This shortfall will likely be made up as more modifications such as eliminating strategies and extending the age of collection are made to social security benefits. These adjustments will likely have more impact on those with greater means.

Social security can be complex and there are different strategies, so it is advisable to consult a financial advisor who is experienced in this area. For our clients, we have a software program that compares the options in a simplified format showing the breakeven age and amounts received at various points which helps clients frame their decision making. To find out how to make the best decision on your social security, contact us today.

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