A lot of emphasis is placed on calculating Social Security benefits as part of a retirement strategy. And rightly so.
A client who waits until age 70 to claim Social Security benefits could receive up to 77% more income than someone who begins claiming benefits at age 62.1
Individuals can easily calculate their potential benefits by logging into their Social Security accounts and using the provided benefits calculator. But what about more complex tasks like developing a plan for withdrawals from their 401(k) or taking required minimum distributions (RMDs)? What about rollovers, annuities, bonds and a host of other retirement income options?
Determining the timing for withdrawing income from retirement investments may be just as important as choosing when to begin receiving Social Security benefits. In fact, both strategies need to be aligned and considered together, not independently.
Clients may place a disproportionate amount of emphasis on Social Security timing simply because it’s easier to understand on their own. The guidance of a financial professional can help individuals take a holistic approach to determining their retirement age and overall income strategies.
According to a recent LIMRA study, the most common age at retirement was 65, followed by age 62. Not surprisingly, these milestone years align with when various benefits can first be claimed (Medicare and Social Security respectively).2
In general, however, there are a lot of variances in retirement ages and a lot of voluntary and positive reasons associated with them. For example, the study found that 53% of those who plan to retire at a younger age (ages 60–64) want to do so to enjoy retirement as soon as possible. Meanwhile, 16% say they plan to retire at age 70 or later because they enjoy working and don’t want to retire earlier.2
Plans and reality don’t always align, however. Retirees who have limited financial resources may generally align their retirement age with benefit eligibility.
One reason individuals may focus on Social Security benefit amounts is that the benefits are guaranteed and will likely increase over time with cost-of-living adjustments.
For many, Social Security is a cornerstone of a retiree’s income. Seven in 10 retired investors’ households say they receive enough income from Social Security and/or defined benefit pension plans to cover all of their basic living expenses.2 For them, it makes sense to want to maximize those benefits as much as possible. However those who end up having to supplement Social Security will likely need the help of a financial professional to strategize alternative income streams.
Workers who are approaching retirement may question how and when to begin leveraging their investments. Perhaps they want to retire before they’re eligible for Social Security or Medicare but aren’t sure if it’s the right move. As a financial professional, you can help them answer questions like:
While the decision of when to claim Social Security benefits is certainly an important one, it cannot be made in a vacuum. In the end, a main concern often revolves around the fear of running out of money in retirement. As clients start thinking about retiring, financial professionals and plan sponsors can shift their conversations about accumulating wealth to focus more on wealth preservation and, yes, spending it.
Retirement planning encompasses so much more than the timing of claiming Social Security benefits. Encourage employees and clients to make a plan that factors in all their income potential to help them reach their retirement goals.
Sources
1 Social Security Administration, When to Start Receiving Retirement Benefits, 2023, January
2 LIMRA, 2023 Retirement Investors, 2023
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