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Financial planning

Are you getting the most out of Social Security?

Couple in a meeting
Senior couple listening to their female financial consultant at home. Elderly couple at home meeting with financial advisor.
Luis Alvarez/Getty Images

Social Security provides a meaningful amount of retirement income for most people. On average, those benefits may replace about 40% of your pre-retirement income. That's why it's critical to understand how the system works.

To make sure you're getting the most out of Social Security, you have to claim benefits at the optimal time and consider other factors that are key to your big picture. The decisions you make could affect your finances or those of a spouse who survives you for decades.

When you have a smart Social Security benefits strategy, you can maximize your benefits. And when you partner with financial advisors who have access to tools designed for retirement planning, the job is even easier. Following are ways that can help strengthen your strategy.

Know the value of Social Security

Social Security provides retirement income and other benefits to most workers in the U.S. It's a valuable source of income for many people, but it's often not enough to retire on by itself. The average Social Security retirement benefit is $1,657 per worker, which might not cover your bills. If you have a relatively high income and a long work history, you could get more than that, but it's wise to think of Social Security as just one piece of your retirement income.

Regardless, Social Security does have some impressive features. A big one is that it most likely will be there, or some form of it, when you need it. Payments are adjusted for inflation periodically, so you'll have some protection against rising prices. Also, the income lasts the rest of your life—or possibly the life of your surviving spouse—regardless of how long you live.

Resist acting in fear that it will disappear

People often wonder if Social Security will continue to exist as the U.S. grows. Headlines may point out that the system is projected to run out of money by 2034 unless something changes. That causes people to fear that Social Security will disappear, and it may tempt you to take benefits as soon as possible. But taking drastic action based on those concerns is probably not your best option.

Social Security still should have enough resources to pay some benefits even if the fund "runs dry," and lawmakers can update the system to keep full benefits in force. The ideal solution is debatable, but Social Security can be kept afloat in a variety of ways that don't involve cutting benefit amounts—raising taxes on workers, tweaking inflation adjustments, raising the age required for benefits or taking other measures.

Any of those changes might mean Social Security becomes less generous in future years. But assuming the worst and reacting based on a perceived threat to promised benefits shouldn't stop you from planning to get the most out of Social Security.

When should you make your first Social Security claim?

The earliest you can claim Social Security is age 62 unless you're widowed or disabled, and the latest is age 70. The point in time within that range when you decide to take benefits affects the amount of income you'll receive. Your age and other timing factors are among the most important things to consider.

Full retirement age

While it may be tempting to get your benefits as soon as possible, claiming Social Security benefits early results in a reduced monthly amount. The Social Security Administration determines "full retirement age" based on when you were born. That's the age you can get unreduced benefits. For everyone born in 1960 or after, your full retirement age is 67. It's slightly lower for people born earlier than that.

If you claim Social Security benefits before your full retirement age, your monthly amount will be reduced by a certain percentage. This decrease is usually permanent to account for the jump-start on the time you're taking benefits. The idea is that because you're taking it early, you'll take a smaller amount.

Hypothetically, let's say in 2022, you turn 62 and claim Social Security benefits shortly after your birthday. It's five years ahead of your full retirement age, so you'd get 30% less than your full benefit amount monthly for the rest of your life. But if you waited until 2027 when you turn 67—full retirement age—you'd get 100% of your benefit amount.

This also can affect what your surviving spouse gets in the event you pass away. Everyone's priorities vary, so it's important to consider all of your needs for income throughout your life before deciding when to claim.

Credits for delaying it

When you reach your full retirement age, you're eligible to get 100% of your Social Security benefit. But if you delay your claim even longer, your benefit can increase by 8% per year. (Technically, you get a slight increase each month, but over a year, those delayed retirement credits amount to an 8% raise.)

On top of this, any inflation adjustments also are based on this higher amount. But perhaps most importantly, if a surviving spouse takes over your retirement income after your death, your increased benefit passes to that person.

Unfortunately, it can be difficult to delay claiming Social Security if you need cash flow. You might try to spend from retirement savings or other sources while your benefit grows, but you also don't want to wipe out your savings, so it's critical to plan carefully. In some cases, strategically drawing down assets can help you manage taxes and minimize required minimum distributions during your retirement years. While Thrivent does not provide specific legal or tax advice, we can partner with you and your tax professional or attorney.

To work or not to work

Working while you're retired can lead to a higher Social Security income—allowing you to claim later and leading to bigger payments—but it also can cause unwanted surprises.

Social Security calculates your income on your highest 35 years of earnings. So if you're earning a relatively high income into retirement, you might be able to boost your benefit. However, if you haven't yet worked for 35 years, your benefit calculation has a zero for any years without qualifying income. But each additional year with earnings removes a zero, helping to raise your monthly Social Security income.

However, if you claim Social Security early and are still working, your benefit will be reduced if you earn too much. The annual limits change periodically. You can earn more during the calendar year in which you reach full retirement age, so make sure to research the limits carefully before claiming. Fortunately, that money isn't gone for good—you'll eventually get credit for any earnings-based reductions—but you might have less cash flow than you expected. Once you reach your full retirement age, there are no reductions for excess earnings.

Factor in spouse and survivor benefits

A well-planned Social Security benefits strategy takes your entire household into consideration. If you're married or have been, it's crucial to coordinate how one spouse's choices affect the other.

Spouses

Spousal benefits under Social Security are generally 50% of the highest-earning spouse's monthly benefit. While the rules can get complicated, they're designed to provide the biggest benefit available, whether that's based on your work history or your spouse's.

For a hypothetical example, assume Pat and Casey are married. They're the same age, and they'll both reach full retirement at age 67. Pat's benefit at full retirement is $2,000 per month. Casey's is only $500 due to lower lifetime earnings. But Pat's spousal benefit of $1,000 is available to Casey. Since that's more than Casey's own benefit, Casey would probably take the spousal benefit instead.

The timing in these decisions, however, is critical. If either spouse claims benefits early, the spousal benefit is reduced. Plus, spousal benefits are only available after the higher-earning spouse begins taking benefits. If you want to get a spousal benefit but your spouse has not yet claimed, you must wait—though you can take your own benefit.

Ex-spouses

If you're divorced, you're still entitled to a spousal benefit based on your ex-spouse's work record if you meet specific criteria. In particular, you must have been married for at least 10 years, divorced for at least two continuous years, and you must be unmarried. You don't need to wait until your ex-spouse takes benefits, and you can claim as early as age 62. But again, if you claim before you reach your full retirement age, you will get a reduced benefit.

Survivors

Survivor benefits might be one of the most important aspects of Social Security retirement benefits. When a spouse dies, the survivor gets the bigger of the two Social Security incomes the couple was eligible for. It's a key reason the timing decision is so important.

For a hypothetical example, if you delay claiming until after your full retirement age, your increased monthly benefit can go to your spouse after your death. This is especially valuable if your benefit is substantially bigger than your spouse's current benefit amount. Conversely, early claiming can adversely affect a surviving spouse who takes over your reduced benefit after death.

Also, surviving spouses have a unique timing opportunity that is unavailable to other couples. If your spouse dies, you have the option to take your own retirement benefit or a survivor benefit and switch benefits later.

In a hypothetical situation, Quinn and Alex each have a $2,000 retirement benefit at their full retirement ages, but Quinn dies at age 62. Alex could take a survivor benefit immediately. While that would be a reduced benefit because of early claiming, Alex's own benefit could continue to increase over time. Alex could even wait until age 70, taking advantage of delayed retirement credits, and then switch to his benefit for a higher income.

Explore all the options

The decision to begin taking income is an important and complicated one. Getting the most out of Social Security requires that you explore all of the options available in light of your marital status, your age, and other factors. Your need for income and any available assets also play a part in the optimal strategy.

While there are several moving parts, it's possible to make educated decisions about when you claim benefits. You can get help from a financial advisor who has sophisticated tools designed for analyzing Social Security and other types of retirement income. Those resources and an advisor's experience and knowledge can help you make smarter decisions with more clarity and minimal effort.

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Thrivent financial advisors and professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.
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