Drawing Social Security based on the four pillars of life
June 10, 2016
By Terry Maiers, CPA
Financial Life Planning Services Practice Leader
A common trend in Social Security benefits today has individuals waiting as long as possible to start drawing in order to receive a higher return. However, this mindset of playing percentages could be affecting your optimal Social Security experience. Each individual’s needs are important when determining the right course of action. There is no boiler-plate Social Security application process so it is important to analyze your future needs and goals.
When deciding when to draw your Social Security benefits, consider these four pillars of life: Your desired quality of life, your life expectancy, the financial goals you want to achieve and the lifestyle you want to live. When you consider these four aspects, you can better determine how to optimize your benefits to fit your needs.
1.) First, consider your quality of life and life expectancy. After you reach full retirement age, you increase your payout by eight percent each year if you wait until you are 70 years of age to draw your benefits. It is easy to look at these numbers and conclude that waiting may be the better option. However, it is important to remember that your total Social Security payout is dependent on your life expectancy.
2.) When looking at your life expectancy and quality of life, keep in mind your current health needs and issues as well as your genetic history. You may want to consider drawing your benefits earlier if your family has a history of lifespans up to 78 years old. Additionally, if you have a chronic illness you may want to draw your benefits earlier for a better quality of life right now. Being realistic and honest with yourself about your health and lifespan could make a considerable difference in your benefit timeline.
3.) In addition to your physical health, be proactive with your financial health and goals for your retirement years. Just because you may not need your Social Security benefit at this time, does not mean you shouldn’t draw it. In fact, drawing your Social Security benefit could mean you can leave your retirement or investment accounts untouched, allowing you to preserve them for a longer period of time. This can allow you to live the lifestyle you desire today, as well as set up your family for the future.
There is a special case for individuals who were born before 1954 that can enhance your Social Security benefit, if you fit the criteria. If you were born before 1954, have reached full retirement age and your spouse is collecting their Social Security benefit, you could qualify for restricted filing. With restricted filing you can elect to collect 50 percent of your spouse’s full retirement age regardless of the age they started drawing their benefit. Along with this, you can delay drawing your own benefits until you are 70 years of age. You can fully maximize the benefit by following this process if you qualify.
4.) Along with determining when to draw Social Security, you will also want to consider your Medicare coverage. Keep in mind that the cost of Medicare may be less than the cost of marketplace or personal health care coverage. When considering your financial needs and goals, pair your Social Security planning with your Medicare planning.
When to apply and file for Social Security is a question with no boilerplate answer. Each case is unique because each individual has specific issues, needs and goals. Keeping in mind the four pillars of life when you reach retirement age can help guide you in your decision. Your golden years are the beginning of a new chapter. Make sure you are optimizing your Social Security benefit experience so that you can tick all the boxes on your bucket list.
For assistance with Social Security planning, contact Honkamp Krueger at 888.556.0123 or submit our online form.
This article was previously published in the June 2016 Tri-State Business Times.