You Can Optimize Social Security

In this article, I'm excited to continue discussing a simple question: what is an income plan? In this brief series, we'll talk about the key strategies that ensure you achieve financial independence and never run out of money before you run out of life: the ultimate goal we have for our clients. At Lord and Richards, we speak with people every day who are concerned that events outside of their control will interfere with their retirement. We can help you build a written plan to achieve financial independence so you can retire without worry and do amazing things with the people you love.

One key piece of your income plan is optimizing your Social Security benefit. If you have browsed online for calculators or done some analysis independently, Social Security may feel complex; there are many opinions and viewpoints available. If you retired today, having paid into the system, and maximized your monthly benefit for 30 years, you would accumulate just shy of $2 million. That massive benefit demonstrates the importance of optimizing your Social Security.

Optimizing your Social Security is vitally important and significantly differs from maximizing it. The goal of maximizing Social Security is to make your monthly check as large as possible, usually by waiting until age 70 to receive the largest benefit. However, if you retire earlier, the amount of time you're not receiving a Social Security check puts potential strain on your portfolio, reduces it more rapidly than intended, and may cause you emotional distress. Placing yourself in stressful situations is not reflective of financial independence. If you plan to retire and leave your day job behind, optimizing your Social Security will be your goal.

Navigating Social Security is a complex process, especially if you're married. There are over 2,728 rules to follow and 567 ways to claim, and you must decipher which method is best and which rules apply. While the Social Security Administration can tell you what your benefits will look like in different scenarios, they cannot advise you. Your Social Security check will be based on your highest earnings over 35 years and what age you begin collecting benefits (between age 62 and 70).

When should you begin collecting?

If you choose to retire at age 70 or later, there's no reason to claim your benefits any earlier. Don't be concerned with the rumor that the system will go bankrupt. Social Security will diminish its accumulated surplus because the baby boomers who once contributed large amounts are now collecting. While this may reduce benefits, it will not cause bankruptcy. Congress doesn't anticipate this happening for decades and will make minor changes in the law that affect the fewest people possible; they want to maintain a positive reputation and have bipartisan support to ensure your benefits will be available.

Should you collect your benefits earlier to receive more money over your lifetime?

The earlier you take your money, the smaller your check will be; the later you take it, the larger your check. While the amount may break even around your life expectancy, most of us don't know what our life expectancy will be. If you're battling through circumstances that are likely to reduce your life expectancy, I recommend you retire and take your Social Security benefits as early as possible so you can enjoy the life you have before you. Otherwise, focus on optimizing your benefits.

Optimization is more complex than creating an Excel spreadsheet or using an online calculator. You must consider all other income sources: your pension, IRA, 401K, rental income, and so on. Our computer software can then generate an optimal plan that places the most money in your pocket by the end of life. While we can consider potential life expectancy, many clients will outlive it by being educated, making healthy lifestyle choices, and saving assets. In addition, marriage increases life expectancy into your 90s in more than 50% of cases! Optimization goes beyond maximization and life expectancy and utilizes a more holistic approach.

The Social Security Administration releases a chart of what retirees live on each year. In the most recent chart, Social Security contributed roughly 33%, private and government pensions 18%, assets 11%, and earnings up to 30%. Did you notice the category “earnings?” Many Americans are still forced to work part-time to make ends meet! That is not the future that I want for you or my clients.

As part of your written income plan, our advisors at Lord and Richards can help you create a Social Security optimization plan that you can apply to your Financial Independence Roadmap?. You can have peace of mind knowing you can retire financially independent (permanently) and enjoy life with those you love. Our team is working hard on this for many clients every day, and we would love to talk to you!