Social Security And Social Security Optimization

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Social Security Is The Foundation Block Of Your Guaranteed Retirement Income Plan

Social Security is the foundation block of your guaranteed retirement income plan, complemented by:

(1)  a company pension (if you are lucky enough to have one),

(2) Immediate Income Annuities, a.k.a. Single Premium Immediate Annuities ("SPIA"),

(3) Deferred Income Annuities ("DIA"),

(4) Qualified Longevity Annuity Contracts ("QLACs"), and

(5 Fixed Index Annuities ("FIA") with more complicated guaranteed income for life Riders. 

The Decision Of When To Take Social Security Has An Impact That Lasts A Lifetime

In the past, a typical retiree would have given little thought to begin taking Social Security on his or her 62nd birthday, instead of waiting until full retirement benefits become available.

Nowadays, however, folks are living much longer and Longevity Risk has stepped to the forefront of retirement income planning. The greatest financial risk that many retirees now face is running out of money.

Most articles written on when to take Social Security promote the merits of waiting until age 70 to take Social Security. However, you should evaluate the pros and cons of taking Social Security sooner versus later.

After taking a closer look, you may - or you may not - come to the same conclusion after weighing all of your personal facts.

Proponents Of Taking Social Security Sooner

Proponents of taking Social Security sooner argue that if you begin taking Social Security at age 62, despite receiving lower payments than you would receive if you wait until age 70, you will have already collected a significant amount of money and be well ahead of the game as opposed to waiting until age 70 to begin receiving higher payments.

In actuality, many folks who wait until age 70 to take Social Security will not even reach The Break-Even Point - the "break-even age" when they will have received the same total amount in benefit payments that they would have received if they had begun taking them at age 62 - until on or about age 80.

BEFORE the Break-Even Point - the strategy of taking Social Security early typically works out better than delaying Social Security to age 70.

Proponents Of Taking Social Security Later

Proponents of taking Social Security later argue that that the longer you delay taking Social Security, your benefit payments will be higher.

This delay can also permanently raise your eligible benefits by a significant amount going forward, because future inflation COLAs ("Cost-Of-Living Adjustments") to your Social Security income will be calculated from the higher base.

If you live well beyond age 80, then chances are you will receive far more benefit payments by waiting to take Social Security at age 70.

AFTER your Break-Even Point Age - the strategy of delaying Social Security to age 70 typically works out better than taking Social Security early - and can contribute to greater income security much later in life - especially if you have a long life expectancy.

Other Considerations

It is important to note that when trying to determine if you should take Social Security sooner versus later, most Social Security calculators assume that you will spend, nor invest, your Social Security benefit payments - completely ignoring the time value of money - and assume no return on investment on the Social Security benefits you receive.

Also, most Social Security calculators do not take into consideration the impact if you must withdraw money from your tax-deferred retirement investment portfolio to fund your retirement income and lifestyle needs prior to age 70 (in lieu of taking Social Security at age 62).

A Few Questions You Should Ask Yourself

(1) Will you need Social Security Benefits before age 70 to maintain your retirement income and lifestyle needs.

(2) What is your realistic life expectancy based upon your health, lifestyle and family history.

(3) If you are married, what is your spouse's realistic life expectancy based upon his or her health, lifestyle and family.

Also keep in mind that age 62 or 70 are not the only options you have when deciding when to take Social Security. You can start receiving benefits at any point after age 62.

Social Security Benefit estimates are just that - and they don't take into consideration future COLAs ("Cost-Of-Living Adjustments") or potential changes the government may make to bailout the Social Security system if needed at some point in the future.

Regardless of when you decide to take benefits, a SPIA or DIA may offer a possible solution to help you bridge the "income gap" you may experience when you stop working until you start collecting Social Security benefits and, in addition, enhance your guaranteed retirement income cash-flow and lifestyle.

The best time to begin collecting Social Security to achieve the highest lifetime benefits.

The Social Security Administration 's website offers a useful tool for estimating Social Security Benefits (http://www.socialsecurity.gov/OACT/quickcalc/index.html).

However, there are a lot of "moving parts" when you evaluate which Social Security benefits to take,  and when to take them, and we highly recommend you consider using a more comprehensive tool before deciding when to take Social Security  - one of the most important financial decisions you will make.

Maximize My Social Security (http://maximizemysocialsecurity.com/)

The Maximize My Social Security web site offers an online tool (for an Annual Household License Fee) that takes into account a variety of household configurations (retiree, spousal, survivor, divorcee, parent, etc.) that help take the guesswork out of when to take Social Security - and helps you determine your Social Security Optimization - the best time to begin collecting Social Security to achieve the highest lifetime benefits.