How to navigate social security

By Kevin Theissen

Social Security is a critical component of many Americans’ retirement financial strategy. Before you begin taking it, consider ways to maximize this retirement income source for yourself.

When to start?

You have the choice of 1) starting benefits at age 62, 2) claiming them at your full retirement age, or 3) delaying payments until age 70. If you claim early, you can expect to receive a monthly benefit that will be lower than what you would have earned at full retirement. If you wait until age 70, you can expect to receive an even higher monthly benefit than you would have received if you had begun taking payments at your full retirement age. The decision of when to begin taking benefits may hinge on whether you need the income now or can wait, and whether you think your lifespan will be shorter or longer than the average American’s.

Should I continue to work?

Work provides income, personal satisfaction, and may increase your Social Security benefits. However, if you begin taking benefits prior to your full retirement age and continue to work, your benefits will be reduced by $1 for every $2 in earnings above the prevailing annual limit. For 2021, that limit is $18,960. In the year you reach full retirement age, SSA will deduct $1 in benefits for every $3 you earn above a different limit. After you attain your full retirement age, earned income no longer reduces benefit payments.

How can I maximize my benefit?

The easiest way to maximize your monthly Social Security benefit is to simply wait until you turn 70, before you begin receiving payments.

How much will I receive?

Calculating your potential Social Security benefit can be complicated, but it is basically a three-step process:

Calculate your average indexed monthly earnings (AIME): The highest 35 years of indexed earnings is added together. It is then divided by the number of months in 35 years to arrive at your AIME.

Determine your primary insurance amount (PIA): AIME is subjected to a formula based on the year of first eligibility (age 62).

Application age: The final calculation will be based on the age you apply for Social Security retirement benefits. For instance, if you apply at full retirement age, you will receive 100% of your PIA. If you apply for early benefits, your benefit will be less, and if you wait until after full retirement age, your retirement benefit will exceed your PIA.

Social Security can be a complex retirement decision that requires careful planning in order to get the most value for you and, perhaps, for your spouse in retirement. You should consider working with your financial professional as well as accessing the information resources at the Social Security Administration, to help you make the decisions that are most appropriate to your needs.

Kevin Theissen is the owner of HWC Financial in Ludlow.