The Foundation of a Retirement Plan – – Social Security

{5:18 minutes to read} A very important topic for people as they enter retirement, is choosing a social security filing strategy that is going to help support them during retirement.

The interesting thing about Social Security is how little people really know about this particular program, and how important it really is for their retirement planning decisions. MassMutual recently sponsored a study that was given to over 1,500 people in the United States.  This particular study involved 10 very simple true/false questions about social security. Surprisingly, only 1 person out of those surveyed could answer all 10 questions correctly.

There is a lot of misunderstanding regarding Social Security, yet this asset represents an enormous part of people’s retirement planning. Studies have shown that in many cases Social Security represents over 50% of people’s retirement income, once they file.

There are many ways for people to take this particular benefit and that can be confusing. By far the most confusing is the married couple. Let’s take Bob and Mary as an example:

• Bob at age 62, has 9 years to take benefits, from ages 62 to 70.
• Mary is also 62 and has 9 years to take benefits, from ages 62-70.

Simple math says that is 81 different age combinations for that married couple to start their Social Security benefits.

In the year 2000, with the passage of the Senior Citizens Freedom to Work Act, 7 filing strategies were introduced. The purpose was to make the system more adaptable and flexible, but if you put those 7 filing strategies on top of the 81 age combinations, you now have a married couple faced with a bewildering array of 567 different choices from which to take their Social Security benefits.

And there are consequences to those choices.

• If you take benefits later, you are giving up money that’s up front;
• If you take benefits early, you are giving up benefits that are going to be paid later.

It’s the right balance and combination of these 2 aspects that is really at the heart of this decision. If the wrong decision is made, it could represent more than $100,000 worth of difference in a cumulative lifetime payment.

People need to make that fundamental decision about Social Security first, and then layer in other assets on top of that to make sure everything works together and becomes part of a comprehensive retirement plan.  Without building the basement first, it’s pretty hard to build the attic, and the basement, in our view Social Security is the foundation for an income plan in retirement.

Building the basement, interestingly enough begins with a free service from the Social Security Administration. Just go to ssa.gov/Myaccount.  It takes about 5 minutes to create your account. The advantage is that essentially you can get instantaneous access to your full Social Security Statement. This statement reports what an individual’s benefits will be at full retirement age.

In addition, this form gives you a year by year accounting of the contributions that have been made into the Social Security system.

What we do is simply take a couple’s marital status, their benefit at full retirement age, and then some sort of projection about longevity, because longevity is really the magic sauce that makes the filing strategy appropriate. Once we have our hands around these very easy data points, we input them into an analysis tool which allows us to boil the 567 choices down to 2 or 3.  At that point, you would say this one makes more sense under certain circumstances, and come to a decision about what you are going to use as the foundation for your retirement plan.

For all the people reading our blog today, we urge you to take a proactive step with regard to your social security. Set up your account with the Social Security Administration.  Then, get us the information and let us help you make better decisions about your benefits.

 

Registered Representative offering Securities through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. Investment Advisory Services are offered through G&G Planning Concepts, Inc. which is not affiliated with APFS.  Strategic Wealth Advisors Network and Gassman Financial Group are not affiliated with APFS.

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