Understanding Social Security

As a Certified Social Security Claiming Strategist, I have worked with individuals who have argued not to include Social Security in their retirement plan because they say that it won’t be around when they retire. 

Others I have talked to say it is best to take it as early as possible instead of waiting. In order to understand how Social Security fits into your scenario, let’s dispel two common myths.

Myth 1: Social Security will not be around when I retire.

It’s no secret that the Social Security Trust Funds are in trouble, but depletion won’t necessarily end the program. The majority of Social Security benefits are actually financed through a dedicated payroll tax. This means the monies that we pay in payroll taxes toward the Old-Age and Survivors Insurance and Disability Insurance (OASDI) trust this month are used to finance the benefits for current eligible recipients the following month. 

So even if the OASDI trust is completely depleted, Social Security will still be funded at the 75-80% range month-to-month based on current workers paying into the system. This myth scenario would only happen if our government didn’t step in and do anything, but past legislation proves the myth wrong.

Myth 2:  I should take Social Security as early as possible.

When to take Social Security is one of the most important decisions to make in retirement. For some, taking it at 62 is well within their scope based on their additional savings and how those savings will be taxed. For others, waiting until 70 actually provides for a more secure retirement plan or can help with future taxation.  

The Primary Insurance Amount (PIA) is what we are eligible for at full retirement age, and the amount is based on our earnings record. Full retirement age is based on a person’s date of birth, but for most it is at or close to 67. This age allows a person to withdraw their benefit without having to worry about the amount of their earned income. 

However, every month a person delays taking their Social Security benefit after full retirement age, they earn of a percent in delayed retirement credits. Before cost-of-living adjustments, at the minimum, that is an 8% annual rate of return on your benefit every year you delay. That means if you let it grow, the most guaranteed source of income in retirement has a better rate of return than most portfolios that are structured for retirement income. 

In conclusion, there are literally hundreds of different claiming strategies within the Social Security umbrella. Every person or family has a unique best-case scenario. However, not understanding how this valuable asset truly fits in your retirement plan can drastically hurt your chances to create a better quality retirement with better guaranteed income and a more favorable tax scenario.  

Kevin Chancellor is a licensed financial advisor who specializes in helping individuals, families, and business owners in the areas of retirement planning, tax savings, estate considerations, and education savings. He has served as board chair for the Greater Palm Bay Chamber of Commerce and works with various charities throughout the county. 

Kevin Chancellor
www.blacklabfs.com
kevin@blacklabfs.com