Maximizing your social security is more important now than ever Personal finance

(Sam Swenson, CFA, CPA)

Although many people are afraid of the future of social security, the reality is that current and soon-to-be retirees will be able to trust the program in the foreseeable future. Given the current inflationary environment we are facing – along with several other headwinds, such as rising interest rates – making the most of social security should be seen as a necessity for those who are currently on and approaching retirement.

Social security has its benefits

In most years, the government gives every social security beneficiary’s payments a bump via a cost of living adjustment (COLA) based on the previous year’s inflation. For 2022, COLA was 5.9%, and the expectation is that 2023 will be much higher.

People also read …

COLAs are separate from your increased basic benefit if you delay your application beyond what the government designates as your full retirement age (OFF). People who enter their full retirement age (now 67 for those born after 1960) will collect 100% of the benefit they have to pay, based on the amount they have paid in social security taxes over the course of their careers. For each month you delay the application for benefits beyond that age (up to 70 years), you will receive incrementally larger basic benefits amounting to 8% per year. For each month earlier than your full retirement age that you submit, your basic benefit will be reduced by a fraction of one percent. These fractions count together. If you apply immediately after you turn 62 (with an OFF of 67), your actual monthly benefit will be 30% less than your “full” benefit.

As such, if you can handle it, waiting until you turn 70 to claim social security is one of the more effective ways to raise your guaranteed income base for the rest of your life. Having a higher guaranteed minimum income (and one that is adjusted for inflation) is a valuable benefit that can help you maintain your standard of living and reduce the rate at which you deplete your nest egg.

Your social security benefits will keep coming for the rest of your life, so the decision of when to apply for them is one of the more impact choices you will make when you retire.

Image Source: Getty Images.

Security in connection with retirement is crucial

Unless you have been able to build your nest egg well into the seven figures, your comfort level when it comes to pulling down on your investments may not be very high. And your worries are likely to be exacerbated if you do not receive distributions from any form of pension or defined benefit plan from your employers.

This is why doing what you can to maximize your social security benefits is so central to a successful retirement plan: Knowing that you will receive some income each month provides a remarkable degree of psychological comfort. Claiming too early – for example at 62 – can leave you with a significant budget deficit along the way if you live a long life. On the other hand, it may be that you only have a few years to enjoy your pension to the fullest if your health deteriorates, if you wait too long to receive your benefits.

Social security will provide a degree of security about your retirement finances that few other sources of income can match. Postponing benefits to the extent you can is usually a good call, even if each person’s situation is different, and your decision should be weighed based on your unique financial and non-financial considerations.

The US appears to be entering a period of lower-than-average stock market returns, high inflation, rising interest rates and socio-political unrest. While optimism is simply necessary to live productively, any extra security around one’s pension plan is likely to prove even more valuable than usual under these conditions.

Getting the right social security

Before submitting your claim for benefits, carefully research your overall financial picture and consider it in the context of the myriad non-financial aspects of your life. If you are unsure when or how to file, it is a good idea to schedule some time with a qualified trust advisor, such as a Certified Financial Planner or a Certified Public Accountant. They can help you assess your entire financial picture and decide on a plan that is in your best interest.

The $ 18,984 Social Security bonus completely overlooks most retirees

If you are like most Americans, you are a few years (or more) behind with your retirement savings. But a handful of little-known “social security secrets” could help secure a boost in your retirement income. For example: one easy trick could pay you as much as $ 18,984 more … every year! Once you have learned how to maximize your social security benefits, we believe you can retire with the peace of mind we are all after. Just click here to find out how you can learn more about these strategies.

The Motley Fool has a disclosure policy.

Leave a Comment