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Essential Social Security Planning Strategies

Essential Social Security Planning Strategies

March 25, 2020
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Part of what makes Social Security planning so difficult is that what’s right for one person often isn’t right for another. Plus, finding reliable advice isn’t always easy. Social Security Administration (SSA) representatives often mean well, but they tend to be overworked and may not have received sufficient training. Since Social Security is often a major factor in retirement planning, taking the time to ensure you’re not leaving money on the table can have a noticeable impact on your income in retirement. Thankfully, there are a few essential social security planning strategies you can use to help create a plan that works for you. 

If you’re looking for assistance in creating a personalized financial plan, speak with a CERTIFIED FINANCIAL PLANNER™ professional at Good Life Financial Advisors of NOVA today!

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Know How Benefits are Calculated

In order to plan for Social Security, it helps to first understand how Social Security benefits are calculated. Many people mistakenly assume that payments are based on your entire working career, but this isn’t the case. Instead, Social Security is based on the income you earned in your highest-earning 35 years of work, up to the earnings limit. 

As of 2020, the earnings limit is $137,700. Any income over the limit is not included in your Social Security payment calculation. You also don’t pay into Social Security with any income over the limit. The Social Security payment you receive is calculated using the average of your highest-earning 35 years. You can also receive smaller or larger monthly payments depending on when you choose to claim Social Security. 

Consider Working Longer

If you haven’t been in the workforce for 35 years, any years you didn’t earn income will count as zeroes. Since the calculation is an average, this will decrease your benefit amount. While working longer isn’t always the right answer, an extra couple of years of employment may make a difference in the amount you’re eligible to receive. Working longer may also be worth considering if you’re currently earning considerably more than you were earlier in your career. 

Avoid Claiming Social Security Early

You have the option of taking Social Security prior to your full retirement age. While getting money sooner may sound appealing, it comes with a catch—you’ll receive a permanent reduction in your monthly payments. And these amounts add up over time. If you claim Social Security at 62 and your full retirement age is 67, you would receive 30 percent less than you would if you waited until your full retirement age. While claiming Social Security early isn’t an ideal strategy for most people, there are certain instances where it can make sense, such as if you’re in poor health. 

Contact us to schedule a social security analysis with Good Life Financial Advisors of NOVA!

Take Advantage of Delayed Retired Credits

Once you reach the full retirement age, you can claim Social Security and receive your full benefit amount. But if you wait to claim Social Security, you can earn delayed retirement credits. Up to age 70, for every year you delay claiming Social Security, you can earn an extra eight percent in monthly payments. Plus this is compounded with an cost of living (COLA) increases.  Delaying claiming is an especially useful strategy if you’re in good health and longevity is common in your family. Delaying may also make sense if you are concerned about spousal survivor benefits. 

Evaluate Your Spousal Benefit Options

The best Social Security strategy involves considering more than how to maximize your own benefits—it also includes considering benefits you maybe be eligible for as a spouse. As a spouse, you’re eligible for payments equal to fifty percent of your spouse’s benefits. If this amount is higher than what you’re eligible to receive through your own Social Security benefits, claiming spousal benefits may be the better option. 

Similar to claiming your own Social Security benefits, if you claim spousal benefits prior to the full retirement age, your monthly payment will be reduced. Even if you are no longer married, you’re still eligible for spousal benefits, as long as the marriage lasted for ten years or more. 

Survivor Benefits

Social Security also includes some benefits for survivors that many people may not be aware of. If your spouse is deceased, you’re eligible to receive his or her Social Security payments (the exact nature of this is beyond the scope of this article). There is also a one-time payment upon death of $255 that the widows or widowers can claim if they were receiving Social Security benefits from the deceased or if they lived with the deceased. Widows or widowers who are the primary caregiver of children under the age of 16 or care for a disabled child may also qualify for benefits. Children of the deceased can claim survivor benefits through high school. 

There are limits to survivor benefits though. The total amount of benefits received by the family cannot exceed a certain amount, which is between 150 and 180 percent of the benefit the deceased could claim. If the qualifying benefits would exceed this amount, each qualifying member receives a reduced payment.  

Work with a Financial Advisor 

Social Security is often far more complicated than people realize. In order to ensure you make the most of the benefits you’re entitled to, you need to capitalize on some essential social security planning strategies. We recommend working with a CERTIFIED FINANCIAL PLANNER™ professional at Good Life Financial Advisors of NOVA who knows how to handle your specific financial needs. 

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