After all those years of paying into the system, many thriving retirees are looking forward to the day when they can begin receiving monthly Social Security benefit checks. Indeed, Social Security should be carefully factored in to your retirement income planning. But before you start enjoying that guaranteed monthly income, there are some important steps you need to take to ensure you’re getting all of the funds you deserve.
1. Set up your My Social Security account. You need to do this first step well in advance of retirement. It’s free, easy, and the best way to prevent scammers from stealing your Social Security number and making false claims against your account. All you need is a valid Social Security number and an email address. Once your account is set up, you can use it to check your earnings record (more on this below), receive personalized statements of future benefits, and view your latest Social Security statement.
2. Get in the habit of checking your earnings record. Your Social Security benefit is based on your highest 35 years of earnings, and if your record is incorrect, you could be stuck permanently with lower monthly benefit payments than you deserve. You should check it at least annually; some taxpayers make it a habit to verify the information close to their birthdays, each year. If you find an error, the Social Security Administration (SSA) has a procedure in place that you should follow to get your record corrected.
3. Know your full retirement age. Depending on the year you were born, full retirement age (“normal retirement age,” in the SSA’s terminology) could be anywhere from 65 to 67 and two months. The SSA has a handy retirement age calculator you can use to verify what your normal retirement age would be. Most people can take early retirement around age 62, but the longer you wait, the bigger your monthly benefit will be.
4. Estimate your retirement income from all sources. This is where you’ll take a look at your IRAs, 401(K) plans, 403(b) plans, pension plans, taxable investment accounts, and any other assets that you are planning to use to generate retirement income, in addition to any part-time work you may want to do. Figure up your required minimum distributions (RMDs) from tax-favored accounts like IRAs and 401(k) plans. A professional financial planner can be very helpful here in assisting you with strategies for minimizing the tax you’ll pay on your retirement income.
5. Calculate your retirement expenses. Yes, this is where we incorporate the dreaded “b” word: “budget.” Factor in things like healthcare, which is a major expense for most thriving retirees, especially in the later years. If you have a health savings account (HSA) to help with medical expenses, figure that in, as well. The more you know about your expenses compared with your sources of income, the more secure you’ll feel as you enter retirement.
6. Remember your spouse. The timing of Social Security benefits affects both spouses. For example, the higher-earning spouse may want to delay receiving benefits as long as possible in order to receive the highest possible monthly income, which is then guaranteed to the surviving spouse for life. And don’t forget about claiming the spousal benefit, which can add guaranteed dollars to the monthly Social Security benefit.
7. Know your earnings limits. Your Social Security income may be subject to a more favorable tax treatment than regular income, but this depends on any income you have from other sources, as well as your employment status. Especially if you plan to continue working — even part-time — in retirement, it’s important to know the impact such income will have on the taxation of your Social Security benefits.
To thrive in retirement, you need to start thinking about all these steps well before you retire. A professional financial planner can be a valuable resource in helping you sort through the details and develop a strategy that works for your particular situation. If we can assist, please get in touch.
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