Social Security Claiming Planning Services

When is the Best Time to Claim Social Security Benefits?

As one approaches retirement, the process of retirement income planning becomes a critical step in determining retirement readiness. The process helps to answer the question, “Will I have enough money saved to retire comfortably?” Deciding when to claim Social Security benefits is an important decision in this planning process. When planning the timing of benefits for couples, the timing of when each spouse claims benefits can have a significant impact on their overall retirement income.

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What are the Basics of Social Security and How Does Claiming Benefits Work?

Before making any decisions, it's essential to understand how Social Security benefits work. Social Security retirement benefits are based on your earnings history, and the amount you receive will depend on when you start claiming benefits. You can begin claiming Social Security retirement benefits as early as age 62, but the amount you receive will be reduced if you start before your full retirement age (FRA). Your FRA is determined by your birth year and ranges from 66 to 67 years old.

If you delay claiming Social Security retirement benefits beyond your FRA, you can earn delayed retirement credits, which can increase your monthly benefit amount by up to 8% per year until age 70. This means each year you wait to claim your benefits leads to a substantial 8% pay raise, yet it also results in receiving one less year of Social Security Income during your lifetime. 

How Does Earning History Affect When to Claim Social Security?

When deciding when to claim Social Security benefits, it's essential to consider your earnings history, and if you’re married, the earnings history of your spouse. Because higher career earnings translate to greater Social Security benefits, the value of your benefits can have a big impact on your claiming strategy. Each spouse is entitled to their own Social Security benefit based on their work history, and the amount they receive will depend on when they start claiming benefits.

For couples who have different earnings histories, it may make sense for each spouse to claim benefits at different times. For example, the lower-earning spouse could claim benefits as early as age 62, while the higher-earning spouse could delay claiming benefits until age 70 to earn delayed retirement credits, which means a much larger monthly paycheck for life. This can allow a couple to maximize their overall retirement income. 

How Does Health and Longevity Impact Social Security Benefits?

Another factor to consider when deciding when to claim Social Security benefits is health and likely longevity. If health factors may cause you to have a shortened life expectancy, claiming benefits earlier may be wise. For married couples, if you or your spouse may have a significantly longer life expectancy than the other, it may make sense for the healthier spouse to delay claiming benefits until age 70 to maximize their monthly benefit amount.

On the other hand, if one spouse has a significant health issue that is likely to shorten their life expectancy, it may make sense for that spouse to claim benefits early to maximize their overall retirement income.

A key point to keep in mind is that the death of a spouse results in the surviving spouse keeping the larger of the two Social Security Incomes, but not both. The smaller income goes away at the first spouse’s death. Therefore, the ability to delay and grow the larger of the two benefits provides a higher income for the survivor. 

How Do Other Retirement Income Sources Affect Social Security Income?

When deciding when to claim Social Security benefits as part of a retirement income planning strategy, it's essential to consider other sources of retirement income. If a couple has significant retirement income from other sources, such as a pension or retirement savings in IRA or 401(k) accounts, it may make sense to delay claiming Social Security benefits to maximize their monthly benefit amount.

However, if a couple has limited retirement income from other sources, it may make sense to claim Social Security benefits early to supplement their retirement income.

What are the Tax Implications of Social Security Benefits?

Finally, it's essential to consider the tax implications of claiming Social Security benefits. Social Security benefits may be subject to federal income taxes, depending on your overall income, but only up to 85% of Social Security is taxable, while the same income taken from an IRA is 100% taxable. Therefore, if you have significant retirement income from other sources, claiming Social Security benefits later while enjoying the continued growth of Social Security Income through deferral may result in lower overall taxes during retirement. In other words, grow the less-taxable Social Security Income while living on the always-taxable income from retirement accounts early in retirement.

On the other hand, if you have limited retirement income from other sources, it may be necessary to claim Social Security benefits earlier because the income is needed; taxes aren’t the most important factor in your planning.

How to Decide When Social Security Benefits should be Claimed?

Deciding when to claim Social Security benefits is an important decision for individuals and couples approaching retirement and working to develop a retirement income planning strategy. It's essential to consider earnings history, longevity and health, other retirement income sources, and tax implications when making this decision. 

A financial advisor or Social Security specialist can provide valuable guidance and help couples make informed decisions about when to claim Social Security benefits.

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Fourth Dimension Financial Group LLC

FOURTH DIMENSION FINANCIAL GROUP
27121 Oakmead Dr.
Suite B
Perrysburg, Ohio 43551