INSIGHTS

As you approach age 65, you likely find yourself thinking about claiming Social Security more frequently. For many Americans, those benefits play a big role in retirement income, and your choices about when and how to claim can shape your financial future. 

Here’s the thing: despite being a significant milestone, many people still find the claiming process confusing, which can lead to missed opportunities that could significantly impact your retirement income and long-term wealth security.

In this blog from Precedent Wealth Partners, we’ll explore the fundamentals of Social Security, the importance of timing, and how factors such as health expectancy and spousal benefits might influence your decisions. Also, we’ll consider how working with an experienced financial planner in Houston, TX, can better position you to make the most informed choices regarding your benefits.

Understanding Social Security Basics

Social Security offers various types of benefits, each designed for specific needs and eligibility requirements. The most recognized is retirement benefits, which individuals can claim starting at age 62, depending on their retirement goals. Besides retirement, Social Security provides disability benefits for those who can’t work due to long-term medical issues, survivor benefits for the families of deceased workers, and Medicare, which offers health insurance to people over 65.

Several factors are important when figuring out your benefits. Your earnings history is the most important factor, as the amount you get is based on your highest-earning 35 years of work. Also, the age at which you choose to retire will greatly affect the monthly amount you receive.

A Precedent financial advisor in Houston, TX, can help you evaluate how these elements fit into your broader financial strategy.

The Importance of Claiming Timing

Timing is a critical factor when it comes to Social Security. The age at which you choose to claim benefits will have a lasting effect on your retirement income. Claiming too early, such as at age 62, may result in reduced monthly payments. Delaying your claim until after full retirement age (which could vary based on your birth year) might lead to higher monthly benefits.

If you delay your claim until age 70, your monthly payments may increase because your benefits can grow by a certain percentage each year you wait. However, not everyone wants to delay. Some people may need to claim early due to personal situations or financial needs. In contrast, others might find it beneficial to wait.

A fiduciary financial planner in Houston with Precedent is experienced with claiming strategies that can help evaluate your options and consider them based on your situation. As fiduciaries, they are legally bound to act in your best interest, providing you with unbiased advice and helping you navigate the complexities of the Social Security system.

Key Considerations for Claiming Social Security

Deciding when to claim Social Security is not a one-size-fits-all approach. Several personal factors could influence your decision. Let’s explore some of them:

• Health expectancy: Your health is an important factor to consider when deciding the best time to claim Social Security. If you’re facing health challenges, it might make sense to explore claiming earlier, ensuring you benefit from your hard-earned contributions. On the other hand, if you’re in good health and have a longer life expectancy, delaying your claim may cause you to receive higher monthly payments over a more extended period.
• Spouse’s benefits: If you’re married, your decision could also affect your spouse’s benefits. There are strategies to maximize spousal benefits, such as one spouse delaying their claim to increase the monthly benefit while the other claims earlier. This approach may help couples balance income needs with long-term planning.
• Other income sources: Social Security is often just one piece of the retirement income puzzle. It’s important to consider how your benefits will interact with other income sources, such as pensions, investment accounts, or part-time work. For instance, if you have a pension that covers your basic expenses, you might choose to delay your Social Security benefits to maximize your monthly payments. These additional sources of income could influence your decision on when to claim, especially if your income needs are already being met from other channels.
• Tax optimization: If you have sources to cover your spending needs, delaying the start of Social Security may offer tax advantages in permitting you to consider systematic year-by-year ROTH IRA conversions of retirement accounts. A low tax bracket presents the ideal opportunity to convert what would otherwise be taxable IRA withdrawals into tax-free ROTH IRA withdrawals. In addition, ROTH IRA balances are not subject to Required Minimum Distributions (RMDs).
• How to apply: You can apply for Social Security benefits online at the SSA website, by phone, or by visiting a local Social Security office. Be prepared with necessary documents such as your Social Security number, birth certificate, and financial records to ensure a smooth process.

Common Social Security Myths and Mistakes

When it comes to Social Security, many misconceptions abound. Unfortunately, these myths can lead to uninformed decisions that may reduce your benefits. Let’s debunk a few common myths:

• The “Break-Even Point” Theory: Some people may believe that delaying Social Security isn’t worth it unless they live past a certain age, often referred to as the break-even point. While there could be some simplistic truth to this concept, focusing solely on it may cause you to overlook other important factors, such as spousal benefits and health expectancy.
• Assuming Social Security will fully cover retirement: Another common misconception is that Social Security will provide enough income to cover all your retirement expenses. In reality, Social Security is designed to supplement your retirement income, not replace it entirely. Most retirees need additional sources of income to maintain their lifestyle.
• Claiming at Full Retirement Age is always best: While claiming at Full Retirement Age might be a solid option for some, it isn’t necessarily the best for everyone. Your financial situation, health, and other personal factors may point you toward either an earlier or later claiming strategy.

Missteps in the claiming process may lead to lower lifetime benefits. To avoid these common mistakes, consult a Precedent fiduciary financial advisor in Houston, TX, and carefully evaluate your options.

Partner With a Precedent Fiduciary Financial Advisor in Houston

Navigating Social Security decisions is just one part of a comprehensive retirement strategy. As you approach retirement, having a trusted partner to guide you through not only Social Security claiming but also tax planning, investment management, and estate planning is crucial.

Precedent Wealth Partners is here to provide personalized, fiduciary-driven advice tailored to your unique circumstances. With more than a century of combined experience, we offer insights that go beyond the basics, helping you pursue a financial plan that balances Social Security with your broader retirement goals.

Ready to embrace a financial strategy designed around your specific needs? 

Please feel free to contact us today to schedule a free, no-strings-attached first conversation. We look forward to connecting with you and helping you take control of your financial future.