Are you planning for retirement? Here are five tips that will help you give consideration to your Social Security Benefits.
Know your estimated Social Security Benefits and how much of this you will use in planning for your retirement – This year, the maximum Social Security monthly benefit check for a doctor retiring at age 66 (“full retirement age”) is $2,663. To qualify for this amount, you must have paid the maximum Social Security tax for 35 years. If your planning includes relying on these benefits during your retirement years, you should compute the estimated Social Security benefit that you and your spouse may receive during retirement. My suggestion to you is – know your number, but plan as if you will not receive it. Let this amount for you and your spouse be a bonus during your retirement years. And, focus on the ‘net’ benefit you will receive, not the gross. Many retired doctors that I see receiving Social Security Benefits are paying taxes on the amount they receive. Knowing your potential benefit number now may help you focus more on your retirement plan savings now and how you should invest your nest egg today.
Review your Social Security earnings statement regularly – You can view your personal Social Security Statement on-line by creating an account with the Social Security Administration (https://www.socialsecurity.gov/myaccount). With your on-line account you can view an uncertified yearly earnings free of charge. Keep track of your earnings and verify them each year. If you prefer to request your Social Security Statement by mail, use this form – https://www.socialsecurity.gov/myaccount/materials/pdfs/SSA-7004.pdf It isn’t necessary to run your Social Security benefit projections annually because the changes annually are minimal. However, making certain that your earnings are posted correctly each year is a good idea.
Give consideration to your Social Security Benefits when investing your nest egg – I have heard clients say that they need to shift their percentage of equities to less volatile asset classes, such as bonds, as they near retirement. While giving consideration to your asset allocation is a good idea, blanket statements such as, your equity holdings in retirement should not exceed 20% of your total assets, can be damaging – especially, to the doctor who may have too few retirement assets. Experts agree that equities provide for the best hedge against inflation over a long period of time. So, to beat inflation over your retirement plan years, the use of equities may still be your best option. Give consideration to what your Social Security benefits may be when planning your needed cash flow. Taking this approach may allow you to be more comfortable in your asset allocation decisions and the thoughts that you need to re-balance your retirement portfolio drastically as you near your retirement years.
Be informed about Social Security benefits and Retirement Planning – Surveys and studies have confirmed that Americans do not properly understand their Social Security options. Your full retirement age varies based upon when you were born. Doctors born from 1943 until 1954, will reach full retirement age when they turn 66 years old. And, those born in 1960 or later, the full retirement age for Social Security is age 67. It’s important to understand your full retirement age for Social Security because if you claim benefits before this age, say at age 62, your benefits may be permanently reduced. Having a proper understanding of full retirement age, the earnings you are allowed when collecting Social Security benefits, and what your spouse may collect and when will keep you from leaving retirement benefits on the table. The Social Security Administration has done a good job with their website and providing educational and planning resources. You can view their website at http://www.ssa.gov.
Maximize your Social Security benefits – Unfortunately, Social Security is complex. Making the right decision on when to apply for Social Security benefits could mean tens of thousands of additional dollars. There are three general rules to maximize your Social Security benefits – these rules are:
- Be Patient – wait to take higher benefits
- Try to take all benefits you can
- Time your benefit collection
The above general rules encompass a myriad of strategies that can and should be considered when planning to maximize your Social Security benefits. These strategies include:
- Delaying the collection of your benefits
- Collecting one benefit early while letting another benefit grow
- File and suspend to get a lump sum option
- File and suspend to activate spousal benefits
- Suspend retirement benefit after “Full Retirement Age” and restart at age 70
- Start/stop/start retirement benefit to activate spousal benefit for your spouse
- Retire early to activate child and child-in-care spousal benefits
- Take widow benefit before retirement benefit
- Take retirement benefit before widow(er) benefit
In your planning, make Social Security more valuable by obtaining all the benefits of which you are entitled. Of these benefits, make use of one of the most overlooked Social Security benefits – spousal benefits. To further enhance its value, maximize your benefits by applying for benefits at the right time; in other words, don’t just start taking benefits because you can. A delayed strategy will provide you with higher benefits and a benefit that may be more valuable to you in your and your family in later retirement years.
If you would like to review a strategy for your specific situation, ask me about maximizing your Social Security Benefits. It will not replace your need to fund your retirement plan regularly, but applying the right strategy at retirement can make a lot of Sen$e.
Mike DeVries is a CERTIFIED FINANCIAL PLANNER ™, Enrolled Agent, and a Certified Healthcare Business Consultant focusing on helping healthcare professionals. If you would like to learn more about becoming a client, contact Mike at www.vmde.com.