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Retirement planning

Your Social Security questions answered

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Thomas Barwick/Getty Images

If you have wondered when you should start taking Social Security, you aren’t alone. Between rumors that the benefit could disappear before you retire and questions about when you can claim it, confusion is common. The key is to keep asking questions while making a plan that works for you.

Will Social Security be there when you need it?

The answer is most likely yes. The program is funded with a pay-as-you-go system using payroll taxes from workers and employers. Funds added by the current workforce are immediately paid to current retirees. With people living longer in retirement and the potential for a shrinking workforce, the system has begun to pay out more than it takes in. Those are just a few reasons why Social Security reform may be on the horizon, but it shouldn't go away.

When can you start claiming Social Security?

You can start receiving monthly Social Security benefits any time between age 62 and 70. Since you have paid into the program all your working years, you may think claiming Social Security as soon as you’re eligible is the way to go. It’s your choice but allow time to avoid making a snap decision. Look at the various claiming options with your financial professional to see what fits your lifestyle and retirement strategy.

How much will your benefit be?

The answer to that question depends on several variables, including how long you work, how much you earn and at what age you choose to claim Social Security. Whether you qualify for spousal or survivor benefits has an impact on the total you receive as well.

If you start taking retirement benefits at 62, you will receive about 30% less each month than if you wait until your full retirement age. On the other hand, you can receive a larger benefit by delaying past your full retirement age. That amount will increase every month you delay up to age 70.

Your benefit is calculated using a formula that factors in the 35 years in which you earned the most. If you haven’t worked 35 years while raising a family or for other reasons, Social Security credits you with zero earnings for each year up to 35.

The Social Security Administration has a Retirement Estimator Tool you can use to calculate benefits based on your actual Social Security earnings record.

What does full retirement age mean?

There is no doubt Social Security can be a major source of income for Americans. Nine out of 10 individuals older than age 65 receive Social Security benefits. Yet, 65 is no longer a magic retirement number, especially when it relates to Social Security.

If you were born before 1954, you’re already eligible for full Social Security. Full retirement age is 66 if you were born from 1943 to 1954. It increases gradually until age 67 if you were born from 1955 to 1960. If you were born in 1960 or later, your full retirement age is 67.

What is the most suitable time to take Social Security?

The good news is, once you are eligible, there’s no wrong answer when deciding when to claim your benefits. If you need guaranteed monthly income, then you should take it when you become eligible. Otherwise, you may decide to wait to try to optimize for the greatest benefit possible. A recent study from United Income found that just 4% of retirees claim their Social Security benefits at the most financially optimal time. That means retirees collectively could lose $3.4 trillion in potential retirement income—about $111,000 per household—because they started drawing benefits at an inopportune time.

It’s worth noting that if you wait to begin claiming Social Security, you may not live long enough to collect the added value of increased monthly payments. That’s why you must weigh all the factors of choosing the most suitable time to claim your benefits, including:

  • Retirement income needs
  • Health status
  • Family medical history
  • Life expectancy
  • Employment plans
  • Marital status and survivor needs
  • Income sources (pensions, investments, 401(k), IRA)

Your life expectancy and health are big variables when deciding when to start receiving Social Security. If you’re healthy or your family history suggests you could live well into old age, you may be able to maximize Social Security benefits. That is why you may want to work with a financial professional who can show you how various claiming scenarios apply to your situation.

What does your marital status mean for Social Security?

If you’re  married

Think about your partner’s future income needs. When one spouse dies, you’ll lose the lower of the two Social Security checks you may have received as a couple. If you wait to start taking Social Security, a potentially larger monthly payment may be beneficial for the living spouse.

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If you have  never married

Primary factors in your decision about when to claim Social Security include how long you plan to work and your life expectancy based on family history and health.

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If you’re  divorced

You may be able to claim spousal benefits if you were married to your former spouse for at least 10 years. You will qualify if you are at least 62, single when you apply for Social Security and if the benefit based on your work history is less than the spousal benefit.

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If you were  widowed  before age 60 or have dependent children under 16

You may begin claiming Social Security survivor benefits at that age. However, benefits will be reduced if you have not reached full retirement age and also if your income from current employment exceeds certain limits.

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If you’re ill, unemployed or have no other sources of income

It may make sense for you to claim Social Security immediately when you retire. But claiming before full retirement age can reduce both your benefit and survivor benefits.

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Do Social Security benefits increase for inflation?

There are annual cost-of-living adjustments (COLA) to help Social Security benefits keep pace with inflation. COLA increases become effective with benefits payable for December each year. Since 2010, the COLA increase has averaged 1.5%.

If you wait to begin claiming Social Security after age 62, any COLA increase that takes effect before you start receiving benefits will be reflected in your monthly benefit.

Will you pay taxes on your Social Security?

The answer to that question depends on several factors. If the only income you have in retirement is Social Security, you likely will not be taxed on the benefit. But if you have earned income from a job or self-employment, or you have income from investments, you may have to pay federal taxes on a portion of your benefit.

Another tax consideration may occur at age 72 when you must begin taking required minimum distributions (RMDs) from your IRA or other retirement accounts. That income may put you in a higher tax bracket and may cause some of your Social Security benefits to be taxable.

Currently, 13 states also tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.

Your financial advisor and tax advisor can help you determine the most effective way to manage your income sources to help minimize your tax consequences in retirement.

Can you change your mind if you’ve already started taking benefits?

What if you made the decision to start your Social Security benefits at a certain time and then change your mind? There is a one-time option to change, but it must be in the first 12 months of claiming. If you’ve recently retired, monitor whether your strategy is the right one for you, especially if you experience changes to health or employment.

Also note that any benefits you may have received before taking this option will need to be repaid, including any spousal benefits based on your work record. But you’ll get a higher monthly benefit when you restart later on.

No matter your age, keep in mind that Social Security was never intended to be your only source of retirement income. Since you can get a fairly accurate estimate of what your monthly benefits will be, Social Security can be a foundation of your overall plan.

Contact a Thrivent financial advisor to get guidance on how starting Social Security benefits may impact your retirement income plan. They have analysis tools that can help you choose an optimal time while factoring in your unique goals, work history and other important considerations.

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Thrivent and its financial professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

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