By Amy V. Smith
According to the Social Security Administration, more than nine out of ten individuals age 65 and older receive Social Security benefits.
Anyone considering retirement and drawing Social Security retirement benefits should have an understanding of how this important decision will affect his or her family and themselves. For someone whose full retirement age is 66, drawing benefits at age 62 permanently reduces an individual’s per year base benefit by 25 percent. While it is true that some people needed to retire, or found themselves in situations where the decision was made for them, it is more financially advantageous to wait. “If you wait, you will receive a guaranteed increase each year of seven to eight percent per year until you reach age 70,” says Raymond James Senior Tax and Estate Consultant Susan Hartman.
If you start collecting benefits and change your mind, you can withdraw your application for retirement benefits within 12 months of your first month of entitlement. You are limited to one withdrawal per lifetime. If your request is granted, you need to repay the SSA all of the payments you and anyone else have collected as benefits and subsequently refile as if it were your first time filing.
Of course, receiving Social Security benefits is only a supplement to retirement income from other sources, including investments and retirement plans. And while some expenses will go away, others will remain—and increase—like healthcare and Medicare. “If you can afford to wait, do so, even if you have to spend assets while you wait,” says Hartman.
However, it is likely that Social Security will provide a smaller portion of retirement income than you expect. In order to keep the system solvent, some changes will likely be made. The younger and wealthier you are, the more likely these changes will affect you. But keep in mind that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said, “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these others forms of protection can be soundly built.”
No matter what the future holds for Social Security, focus on saving as much for retirement as possible. When combined with your future Social Security benefits, your retirement savings and pension benefits can help ensure that you’ll have enough income to see you through retirement.
Remember, Social Security also offers disability and survivor’s benefits. With all the focus on retirement benefits, it’s easy to overlook the fact that Social Security also offers protection against long-term disability. And when you receive retirement or disability benefits, your family members may be eligible to receive benefits, too.
Another valuable source of support for your family is Social Security survivors insurance. If you were to die, certain members of your family, including your spouse, children, and dependent parents, may be eligible for monthly survivors benefits that can help replace lost income.
Do not forget to consider taxes in addition to reduced or withheld benefits before Full Retirement Age. Always consider the net (after-tax) benefits you will receive. A working spouse may cause more of your benefits to be taxed – and at potentially higher tax rates.
For divorced individuals, an individual must be unmarried when he or she applies for benefits if applying for spousal benefits based on an ex-spouses work history. If a widow or widower collecting survivor benefits remarries, he or she does not lose benefits.
You should apply for Social Security benefits approximately three months before your retirement date. No matter when you apply for Social Security, you’ll be eligible for Medicare at age 65, so make sure you contact the SSA three months before you turn 65, even if you plan to retire later.
For specific information about the benefits you and your family members may receive, visit the SSA’s website at www.socialsecurity.gov, or call 800-772-1213 if you have questions.
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© Amy V. Smith Wealth Management, LLC, is an independent firm. Amy is a Certified Financial Planner (CFP) and Certified Investment Management Analyst (CIMA) and offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC. Her office is located at 161 Fort Evans Road, NE, Ste 345, Leesburg, VA 20176. www.amysmithwealthmanagement.com.
The opinions and recommendations here are those of the columnist.