When to claim your social security benefits is a strategic and vital consideration. Unfortunately, the good folks at your local social security administration office are likely to be of little help. Not only are they not trained in claiming strategies to help you maximize your benefits, but they are also not allowed to advise you on the best way to claim. Receiving a claiming strategy is not going to happen from them.
Here’s the kicker: How many people actually claim their social security benefits at the optimal time to maximize their retirement income? Recently reported by Forbes, a study by United Income found that only 4% of retirees claim their social security benefits at the optimal time. How much does this really matter? The study shows this leaves roughly $3.4 trillion dollars on the table during retirement. That’s TRILLION. How big is a trillion, really? Well, one trillion inches is almost 278 million football fields. So, there's that. One trillion seconds ago was roughly 30,000 B.C. Starting to get the idea? Claiming at the right time is a big deal for your retirement.
How much does this translate to for the average American household? For a single retiree, over $100,000 in lost retirement income; for a married couple in retirement, over $250,000. Talk about putting stress on your other retirement accounts and jeopardizing their longevity . . .
Perhaps one of the most striking revelations in the study showed that “Elderly poverty could be cut by nearly 50 percent if all retirees claimed Social Security at the financially optimal time.” Astounding. Truly astounding. The study also showed that while only 4% of people claimed social security at the best time to maximize their income, 70% of people claim benefits before age 64. In this case, only 6.5% of households were better off for having done so.
Many feel that they should claim early because they won’t live long enough to see the benefit of delaying, or that social security will run out of money. As noted above, this only works out better for retirees 6.5% of the time. In other words, this philosophy has a failure rate of 93.5%. Those are not good betting odds.
But let’s be fair: Social security is complicated. It is not easy to know the right time to claim. It is different than your neighbor’s optimal time, and it is often different than your spouse’s. Should one spouse delay and the other claim now? Should you wait until 70, or 68 and 10 months? How do you structure a spousal benefit so that you get a spousal “boost”? What about a restricted application, for those were born before January 2, 1954? It is also important to take into account your other retirement assets and what sequence you will be drawing from them. Unfortunately, we can’t simply look at social security claiming strategies in a vacuum. Many factors are involved.
A tailored Social Security Analysis prepared by a National Social Security Advisor (NSSA®) certificate holder can help. After all, claiming at a sub-optimal time is the wrong thing to be wrong about. It could put a six-figure dent in your retirement.
But it’s not about the money, really, is it? Well, let’s be honest—yes! You deserve every nickel you can get from your social security benefits. But it’s more about what the money could do for you. More vacations, a newer car, more trips to see the grandkids, more golf, supporting someone on a mission, starting a business, preparing for medical needs, buying a boat (can we come?). The list goes on.
Again, this is not a small thing.
Tax-free Social Security
However, one aspect the study and article both failed to address was another “sub-optimal” element, that of taxation on social security income. While the right claiming strategy is critical, ensuring that you receive your social security income tax-free (or at least heavily tax-mitigated) is perhaps just as crucial. While we don’t have statistics to share on this, our own experience tells us that fewer than 1 in 20 have structured their retirement plans in such as way as to not taint their social security with unnecessary taxes. How many trillions does this take from your table and move to the IRS's table?
For a deeper discussion on the eroding effects of taxes on social security income, the effect that has on your retirement, and how to potentially receive your social security income tax-free, please see our posts “How Much Will My Social Security Be Taxed?” and “The Tax Columns—How Will Taxes Affect My Retirement?”
A Social Security Analysis will show you multiple claiming strategies, taking into account your personal situation and financial factors. It will also show you how to position your other retirement assets so your social security income is not tainted by unnecessary taxes, or to the least degree possible. This doesn’t happen by default or accident. It takes dedicated, methodical, strategic action. Understanding your optimal claiming strategy and the proper alignment of your other retirement assets could be the difference in hundreds of thousands of dollars throughout your retirement.
Request a Social Security Analysis from one of our National Social Security Advisor® certificate holders.
Be one of the 4% who gets it right.
Kristen Cooper, NSSA®
Axios Capital Strategies