According to the Social Security Administration, Social Security replaces about 40 percent of an average wage earner’s income after retiring. To have a comfortable retirement, it is clear Americans need much more than just Social Security. They also need private pensions, savings and investments. With individuals relying so heavily on Social Security for their retirement it is critical to make Social Security benefit optimization a part of the retirement-planning process. Keeping with Next Generation Wealth Management’s motto – “It’s not about predicting the future. It’s about preparing for it.” - what will be your strategy?

There are many variables to consider when preparing your plan to draw your Social Security benefits; your current savings, percentage of your retirement income you will be withdrawing from tax-deferred accounts, other assets or income streams you can fall back on, expected rate of return, tax rate, if you have a spouse who can defer his | her benefits, and life expectancy.  Correct timing of your Social Security payments can be worth thousands of dollars over your life and can even alter your quality of life in retirement.

The first step to determine your Social Security payment plan, albeit an obvious one, is getting to know your benefit. Your Social Security benefit is based on your earnings while you were | are employed. Details of your current benefit, such as current eligibility, a record of year-by-year earnings, and an estimated benefit, can be found at www.ssa.gov.

Your Social Security benefit can be drawn starting at age 62. However, careful consideration should be taken to determine if waiting until your full retirement age would be beneficial. Drawing benefits at 62 will result in a lower monthly check and a potential reduction penalty for employment. At full retirement age, you will receive a higher monthly check than if you were to start receiving your payments at age 62 and will not be penalized for employment. Your full retirement age is based on the year you were born [see table below]. In addition, if you wait until you are 70 to start Social Security distributions, you will receive an even higher monthly check. For each year beyond your full retirement age that you delay payments, your benefit can increase by as much as 8%.

You should consider electing to take your benefits early if you:

• Need the payments to cover expenses right away
• Are experiencing health concerns or expecting not to make it to the average life expectancy
• Would rather take payments early to invest them or prefer to preserve other savings
• Are the lower earning spouse while the higher earner continues to be employed

You should consider delaying your benefits if you:

• Have other sources of income to cover expenses
• Plan to continue employment and want full benefits later
• Are in good health
• Are the higher income earning spouse and want to surpass the full retirement age to ensure surviving spouse receives the highest benefit amount

Tax considerations should be evaluated carefully, as up to 85% of your Social Security benefit could be subject to tax. Taxes on your Social Security benefit are based on your provisional income. Basically, provisional income is your adjusted gross income plus any tax-exempt interest and 50% of your Social Security benefits.

In addition, if you are married, additional benefit options may help you maximize your Social Security benefit. For example, a lower-earning spouse may be eligible for up to 50% of the higher-earning spouse’s benefit. Staggering each individual benefit may allow you to increase one monthly benefit amount; thus, potentially increasing your Social Security benefit later and reducing the income needed from your personal savings.

Finally, the following Special Social Security Provisions must be taken into consideration. These provisions can have a large impact on your overall retirement plan.

• Claim & Suspend – individuals at full retirement age can claim benefits and then suspend the benefits. When benefits are reinstated, you will receive a higher benefit amount.
• Claim Now, Claim More Later – a married individual can claim 50% of their spouse’s benefit now and claim a higher personal benefit later, enabling a higher overall benefit for the married individual.
• Do-Over – individuals can change their previous claiming selection [within 12 months of initial claim], paying back the amount already collected, resulting in higher monthly payments at a later date.

By working with a financial professional to become aware of all of your options for electing your Social Security benefit you can save thousands of dollars. Through strategic choices related to timing [briefly discussed above], employment, taxes, spousal benefit, and special provisions, you may be able to increase your benefit.  The Next Generation Wealth Management team welcomes the opportunity to walk you through your Social Security and retirement plan.