Social Security is enormously complex. There are thousands of different ways to coordinate your benefits.

Before you take your Social Security benefit, you need to understand the benefits to Social Security. After all, you have been paying into Social Security for more than two-thirds of your life. These “5 things” will help you start looking at Social Security differently. Social Security is part of your retirement strategy and plan, it’s not just something you plan on taking and then you just get a monthly check. It’s critical that you get this right, especially since you can’t change your mind after 12 months.

Your retirement plan needs to start revolving around how you will take your Social Security benefits, not the other way around, and I will show you why.

1. Social Security will be there for you, period. If you are currently over the age of 55, there aren’t a whole lot changes that could affect your benefit or your full retirement age according to the Social Security Administration. Social Security is a pay you go system. Right now there are about 2.5 people paying into Social Security for every one person drawing Social Security. Even if nothing is done and the reserves for Social Security dries up, about 75% of your benefit will still be paid to you because there are people always paying money in to the system. For people that are younger there are most likely going to be changes coming.

2. Social Security is quite possibly the largest asset you have. It is also one of the best assets you have in retirement to help protect you from longevity. Let me prove it to you. Let’s say your benefit at age 66 is $2,000 and you live for 20 years. Do the math and $2,000 x 12 months x 20 years = $480,000! You take a married couple and the same amount of money and that is a
$960,000 asset. Almost a million dollar asset between the two of you. That isn’t even taking into consideration the cost of living adjustments you will receive over time, which would then send the total amount you receive well north of one million dollars.

3. Deciding whether taking your benefits earlier or later can be easily determined by your health and your life expectancy. If you are in poor health, then it may make sense to take your benefits as early as possible to make sure you get the most out of it. If you have great longevity and could possibly live a long time, then it may make sense to defer your Social Security benefits as long as possible to get the most out of Social Security. The break even in your benefits varies depending on if you are single, married, divorced, widowed, or have minor children. Social Security is easy when it comes down to the two principals: The longer you wait, the more you get. You have to be living to receive benefits. Unfortunately, Social Security goes much further than those two principals. There are hundreds of thousands of claiming combinations.

4. Taxes. Have you given any thought to how taxes play a role when taking your Social Security benefits? I talk to people in or near retirement on a daily basis, a good portion of them are shocked that part of their Social Security benefits could be taxable. The good news is that Social Security is quite tax efficient. The bad news is trying to figure out how much of your benefits are going to be taxable isn’t that easy of an equation. You need to do is start planning on how taxes play a role in your retirement, and then figure out how to make sure that most, if not all, of your Social Security benefits aren’t taxable. It’s possible to have none of your Social Security taxed if you are doing proper planning. Talk with a Minnesota tax consultant to learn more.

5. When you start planning your Social Security, start looking at the whole retirement picture versus Social Security on its own. There are times when it may make sense to take Social Security as early as possible and draw from your retirement accounts later to fill in your income gaps, or maybe it may make more sense to take from your IRA’s or 401k’s or other retirement accounts so that you can increase your benefit. If you take your benefit at the earliest age possible, which is 62, you will have a reduction in benefits. If your full retirement age is 66 according to the Social Security Administration and you take your benefits at age 62, then your benefits will be reduced by 25%. If you look at it the other way around, and you defer your benefits until 70, then you will receive 132% of your benefits. That is a 76% difference in benefits! Looking at your Social Security and tying it in with your whole retirement picture is crucial.

Social Security benefits play an important role in your retirement.

Plan ahead…

• Social Security decisions are permanent.
• You’ll be drawing Social Security almost as long as you have been paying into it.
• You’ll want to maximize your benefits.
• Social Security will play a role in your retirement.
• It may be the largest, most tax-efficient, guaranteed stream of income you will have in retirement.

If you have any questions about retirement in Minneapolis feel free to come pay us a visit!

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5 Things You Need To Know Before Taking Social Security
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