By Rob Kron, Managing Director and Head of Investment and Retirement Education
When it comes to retirement planning and the role of Social Security, there are generally two broad buckets of thought. One regards the
program as an important (even primary) source of retirement income. The other gives Social Security little canvas in the big retirement planning picture.
But there is a middle ground between these two extremes. Social Security is not a retirement income strategy in itself, but for those who are eligible, it can and should be an important component of your overall retirement plan. It’s a benefit you have paid for your entire working life, and you should seek to maximize it in retirement and ensure it is working hand-in-hand with your other income sources.
Here we’ll hit on a few commonly asked questions in regard to Social Security.
When and how do I begin to delve into Social Security?
A better understanding of Social Security begins with one four-page report—your Social Security Statement. The Social Security Administration (SSA) prepares and maintains statements for every person over the age of 25 who has paid into the system. Currently, the easiest way to access your statement is to visit www.ssa.gov and sign up for a “My Social Security” account. We recommend you do this now, no matter what your age, and keep track across time.
What will my statement tell me?
It covers three important items:
- Your Earnings History. This is a record of every dollar you’ve paid into the Social Security system. You will want to check this for accuracy because it will determine the amount of your monthly SS check once you start collecting benefits. Your earnings are listed year by year, and the SSA will use the best 35 of those to determine your benefit. If you find an error, you have a relatively small window in which to contact SSA and make a correction.
- Your Estimated Benefits. This is an estimate of how much money you may get at age 62 (currently the earliest eligibility age), at full retirement age (FRA) and at age 70. Importantly, this is only an estimate and is subject to change. It assumes you will work to your collection age and continue earning whatever you did last year. In general, the closer you are to retirement, the more accurate your estimate may be.
Program Summary. Your statement includes a letter summarizing the health of the program. This year’s letter estimates the system can meet all future liabilities through 2032. If nothing changes between now and then, benefits will need to be cut by 23% starting in 2033.
If I start collecting early, will my benefits increase when I hit my FRA?
No, your benefits will not be adjusted. Essentially, you are signing up for reduced benefits for life. So while you can begin collecting Social Security benefits as early as age 62, your payment is adjusted downward for each month short of your FRA.
Why delay taking benefits?
Delaying can have a meaningful financial impact. For every month past your FRA, you receive a “raise” from the government known as delayed retirement credits (DRCs). You can earn DRCs until they max out at your 70th birthday. Assuming an FRA of 66, you will have accrued a 32% increase in your monthly Social Security check … for life. At the other end of the spectrum, collecting at the earliest possible time amounts to a 25% permanent decrease in benefits. (See chart below.)
I’ve never worked, so I don’t need to think about Social Security, right?
Not so. You may be eligible to collect spousal or survivor benefits from your spouse or ex-spouse. I invite you to visit blackrockblog.com, where I recently wrote on this.
This only scratches the surface. The decisions related to Social Security are not necessarily straightforward. They must consider your own benefits eligibility, age and health, as well as those of your spouse. They also should take into account your other sources of retirement income (e.g., IRA, 401(k) or other savings) and the timeframe in which you expect to draw upon them. Ultimately, though, Social Security should be a core component of your retirement income plan.