As we turn the pages on our calendars and approach another fall season, I am reminded yet again of the importance of planning. It seems as each year passes the pages of the calendar turn faster and faster. Our good friend Benjamin Franklin once put it very simply: “By failing to prepare, you are preparing to fail.” I believe we are all guilty of life getting in the way at times. It is how we respond that makes the difference.
Understandably one of the most asked about topics, and perhaps one of the most important, is retirement planning. Retirement planning con sometimes be overwhelming. However, the end result can be life changing. Think of retirement planning as a navigation system. We all get lost and off-track at times. The plan guides us; it allows us to get back on track, and if needed, make adjustments along the way. Most importantly, it keeps the end-goal front of mind.
I would like to share a few of the many topics we discuss as we begin the retirement conversation with clients:
- Deciding when to retire,
- Cash flow analysis and determining a comfortable withdrawal rate,
- When you should apply for Social Security benefits,
- Coordinating distributions from different accounts, and
- Family Planning and leaving a legacy.
For some clients, Social Security is a significant retirement asset and plays a crucial role in the success of their retirement. In this article I will dive a little deeper into some of the common Social Security questions I receive from clients.
Question: “When should I claim benefits? Should I claim early or delay?”
Answer: Claiming benefits is a personal choice but understanding the pros and cons of claiming early or delaying the impact it will have on your retirement cash flow is critical. Knowing that your benefit may be reduced by as much as 30% for claiming early must be carefully considered when planning for retirement. Did you know taking benefits early may also impact survivor benefits? What about delaying? Social Security offers an annualized bonus of 8%, calculated monthly, for each month you delay past your normal Full Retirement Age. That’s an 8% guaranteed increase, from the Social Security Administration, for each year you delay up to age 70. That guarantee is hard to match.
Question: “What happens to my benefits when my spouse passes away?”
Answer: This is a very valid question If you are Full Retirement Age or older, you will generally receive the greater of the decedents benefit or your own benefit, but not both. As a survivor, you can claim a reduced benefit as early as age 60. If you are over age 60 but under Full Retirement Age, you will generally receive 71% – 99% of the decedent’s benefits. You may also be able to delay your personal benefit and allow that to grow until age 70 while still claiming a survivor benefit. In any case it is important to know you cannot collect multiple benefits simultaneously.
Question: “I was divorced, am I entitled to benefits?”
Answer: Being divorced doesn’t necessarily mean you have surrendered a claim on your ex-spouse’s benefit. There are several different factors that impact eligibility such as length of marriage and whether or not you are remarried. If your ex-spouse predeceases you, then you may be eligible to receive their higher benefit.
Question: “Can I work and still claim benefits?”
Answer: The simple answer is yes. You can work and still claim benefits, but know those benefits may be reduced based on your earnings if you haven’t reached Full Retirement Age yet. The earnings cap for 2017 is $16,920. Therefore if you are younger than Full Retirement Age and earn more than $16,920, then your Social Security benefit will be reduced by $1 for each $2 you earn above $16,920. Once you reach Full Retirement Age the earnings cap is eliminated and you may earn an unlimited amount of income without any reduction to your benefits.
Deciding when to retire is certainly a personal decision. Perhaps the better question is “what will you do in retirement?” After all, every day of retirement is a Saturday. Are there retirement concerns that keep you up at night? Feel free to contact our office today to get the answers you are looking for. We look forward to continuing the conversation with you.