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Ask an Advisor: I’m Looking for ‘a Tiebreaker’ After 2 Advisors Suggested Different Social Security Strategies. Which Advisor Should I Choose?

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Michele cagan

I’m speaking with two advisors and am looking for a tiebreaker. One advisor says to wait to take Social Security until I’m 70. The other says to take it now, taking the mindset that “a bird in the hand is better than one in the bush.” Financially, we’re OK. But we have a cash burn of 7% to 8%, which we really don’t like as we eat away at our asset base. The future of Social Security is iffy going forward and could possibly be reduced to 80% if you listen to the hype. We want to leave a legacy for our children, so cashing in on our assets early is concerning. Which advisor should I choose?

-David

Great question and one many people wonder about. The answer is not as simple as you might think. While you’ll get bigger monthly payments the longer you wait, that’s not the only factor to consider.

You need to think carefully before choosing your start date. The monthly payments can be
dramatically different depending on your age when you start collecting Social Security benefits.

To get the most out of your benefits, you’ll need to think strategically and consider all of the relevant factors. (And while it sounds like you’re already considering professional help, other readers with questions about retirement income strategies may consider working with a financial advisor.)

Your Full Retirement Benefit

Consider when to take Social SecurityYour Social Security timing decision starts with understanding your full retirement benefit. The point of Social Security is to replace the income you had before you retired. They calculate that replacement income based on how much you’ve earned during your working years, and the calculation is based on two main factors. They are:

  1. How many years you’ve worked
  2. How much money you earned each year

The time portion of their calculation is based on work credits. You’ll need to earn at least 40 work credits during your lifetime to qualify. You can earn up to four credits every year. Since credits are based on earnings, you don’t need to work a full year to earn the four annual credits. For 2022, you get one credit for every $1,510 you earn, and earning $6,040 gives you all four credits for the year.

The money portion of the equation involves some special math. It starts with your actual historical yearly earnings, then adjusts them to account for wage increases over time. For example, the salary you earned in 1995 would be adjusted to what the equivalent would be today.

They then average the highest 35 years of adjusted annual earnings (using $0 for any years you didn’t earn). Next, they use a more complicated formula to figure out your full retirement benefit.

For 2023, the maximum full retirement benefit will be $3,627 per month.

Note: All of these calculations are based solely on earnings on which you’ve paid Social Security tax. Those taxes are subject to an earnings cap, which was $147,000 in 2022 and will be $160,200 for 2023.

Social Security Works Differently for Couples

If you and your spouse both earned at least 40 work credits, you’ll both qualify for retirement benefits. But if one of you doesn’t have enough credits or earned significantly less, the spouse who earned less can receive half of the high-earner’s benefits.

For example, if your monthly benefit would be $3,000, and your spouse’s benefit would be
$1,200, they’d get an automatic bump up to $1,500, or half of your benefit.

When Should You Start Taking Social Security? It Depends

Virtually every soon-to-be retiree struggles with when to start taking Social Security. And while it seems like there should be an obvious answer, there isn’t. The best timing depends on your personal situation.

You can start taking benefits as early as age 62, as late as age 70 or any time in between. The timing you choose will affect the monthly benefit you receive.

At your full retirement age (more on that in a moment), you’ll be able to receive your full
retirement benefit. At any time before then, you’ll receive a reduced benefit. If you start taking Social Security after your full retirement age, your benefit will be increased. And while age is an important factor in your decision, there are other things to consider as well. Those considerations include:

  • Your monthly budget
  • Your life expectancy
  • Your marital status

First, though, you need to know your full retirement age (FRA), which depends on when you were born. Here’s a breakdown on FRA as it relates to birth year:

  • Birth year: 1956
    • FRA: 66 and 4 months
  • Birth year: 1957
    • FRA: 66 and 6 months
  • Birth year: 1958
    • FRA: 66 and 8 months
  • Birth year: 1959
    • FRA: 66 and 10 months
  • Birth year: 1960 and later
    • FRA: 67

While you will get a reduced benefit if you begin receiving Social Security before your FRA,
you will be getting that monthly payment for a longer period of time. That means you could end up getting more money overall during your lifetime than if you’d waited. On the flip side, waiting until your FRA or beyond will bring you bigger monthly benefits, which also means bigger cost of living adjustments going forward.

Your life circumstances will dictate which is the best approach for you. Factoring in the three other key considerations – budget, marital status and life expectancy – will help you make the most effective choice for your family.

Your Budget

If you’re stretching or struggling to make ends meet, taking Social Security sooner could make sense. You don’t want to sacrifice your current quality of life for the future … as long as you have a future budget planned.

Be aware, though: Starting early will lock you in at a lower monthly benefit, which also means smaller cost of living increases going forward. That can make it harder to keep up with inflation on a fixed income in the future. So if you can find a way to boost monthly cash flow before you hit your FRA – and do that without depleting your other retirement resources – you may want to consider delaying benefits.

Marital Status

For single people, the decision about when to start collecting Social Security is more
straightforward. For married couples, you’ll want to work out your timing as a couple. It’s also important because of the way survivor benefits work: Should one spouse die, the remaining spouse will receive whoever’s benefit was bigger. When you plan as a couple, you’ll be ensuring the eventual surviving spouse gets the maximum possible benefits.

Your Life Expectancy

Consider longevity in your Social Security strategyThe average life expectancy for American adults is 76.1 years, according to the Centers for Disease Control and Prevention. By gender, men live an average of 73.2 years, while women live an average 79.1 years. Those are the averages, but your personal life expectancy could be significantly different.

You can’t predict your longevity with any certainty, but you can make a pretty good guess.

Base your estimate on your current health, lifestyle factors and family history. If your life expectancy is lower than average, applying early for benefits usually makes sense. With average life expectancy, starting at your FRA typically offers the maximum lifetime benefit.

If your longevity is expected to be higher than average, delaying payments as long as possible provides you with the largest monthly paycheck for life.

What to Do Next

With advisors giving you conflicting information, you have two options for figuring out your best course of action.

Firstly, you can take a look at all of the factors discussed here and see which will impact your timing for starting Social Security. Taking the whole combined picture into account will help you choose the optimal start date.

Alternatively, consider finding a financial advisor who asks you all the right questions, and doesn’t just give you a quick one-size-fits-all answer. Working with an advisor who understands your unique situation and takes your personal factors into account will give you the best support for a secure financial future.

Michele Cagan, CPA, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Michele is not a participant in the SmartAdvisor Match platform.

Tips for Planning for Social Security

  • If you have questions specific to your Social Security strategy, a financial advisor can help. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • When it comes to Social Security, you can’t afford any missteps. In determining when to claim benefits, it’s helpful to use a Social Security calculator to estimate the amount to which you’re entitled.

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