Article by David Imhoff
For many people, Social Security represents a significant portion of their income in retirement. With that in mind, the following discusses Social Security basics and items to consider regarding when you should start your benefits.
The Basics – Social Security benefits are essentially guaranteed income that:
Is adjusted for inflation;
Is free of investment risk;
Is protected against longevity risk; and
Comes with a survivor benefit for married (and sometimes divorced) individuals.
These benefits can be a significant source of retirement income and it is critical individuals know how to optimize their lifetime benefits. Benefits are determined by birth year, retirement age and lifetime earnings. Once an individual reaches full retirement age (FRA), they are eligible for full retired worker benefits, also known as the Primary Insurance Amount (PIA). Currently, the FRA is from age 66 to age 67 depending on year of birth.
Workers who claim benefits prior to reaching their FRA will receive a reduced benefit of up to 25 percent of their PIA. Conversely, delaying a claim until age 70 results in a larger benefit of up to 32 percent of their PIA [plus Cost of Living adjustments during the four intervening years].
Delaying Benefits – Delaying Social Security generally optimizes lifetime benefits. This is especially true for married couples due to additional benefits such as spousal and survivor benefits. Delaying can potentially offer the following benefits:
A higher guaranteed, annuity-like benefit with cost-of-living adjustments,
A higher benefit paid to the surviving spouse for the rest of their life, and
A higher benefit that will act as longevity insurance (protection against outliving one’s assets).
Summary – The decision of when and how to take Social Security benefits depends on each individual’s circumstances. Cornerstone Wealth Advisors has the knowledge and experience to help analyze various options to determine the right strategy for you. WARNING: The Social Security Administration personnel cannot do planning and in many cases do not understand all of the options available to you.