Born in 1935 with a 32-page act of Congress, Social Security now stands not only as our government’s largest entitlement program, but its biggest budget outlay overall.1
Thus, given its outsized stature in the retirement planning of most Americans, volumes of information continue to accumulate around Social Security. Go to the program’s official website and you will discover screens after screen of content and resources. Visit a local library and you will find scores of reference books packed with program facts and planning considerations.
The problem is that there is so much to know about Social Security, it is daunting. As your clients approach retirement and begin to feel the weight of mounting decisions and deadlines, expect to encounter planning insecurity toward Social Security. Ready yourself for a host of questions about this fundamental element of nearly every client’s retirement income strategy, including:
- What are the key facts?
- What are the eligibility details?
- What are the important strategies to know?
Those questions merit answers. But how much information is too much? Wading through all the “whats” of Social Security – the details, the assumptions, the strategies – may be counterproductive. Some of it may relate to a client’s situation. A fair amount may not.
There may however be a way to approach this that is easier to manage and makes more sense. You see, sometimes, it’s not the “whats” but the “whens” that matter most in addressing such a complex topic.
What Matters Most to Me?
Knowing the “whens” of Social Security means focusing on the specific information most relevant to a client at their specific age or retirement stage. Adopting this approach frees clients and their financial professionals from having to “drink from a fire hose” in an attempt to assimilate all the voluminous details of the program. No client needs to know every consideration for every age all at once. Instead, hone in on what matters most … at the upcoming pivot points most relevant for this juncture in your client’s retirement path.
For example, let’s say your client is coming up on common action stages of the retirement planning process. Perhaps they are approaching age 60. If that’s the case, 62 looms as a milestone:
- 62 is the earliest a worker can receive a Social Security retirement benefit. The benefit will be 75% of the full retirement age benefit. For workers born 1955 and later, the early retirement benefit will be less than 75%. The minimum is 70%.
- 62 also is the earliest a spouse can receive a Social Security spousal benefit based on worker’s earnings history. Benefit will typically be 35% of worker’s full retirement age benefit. For those born in 1955 and later, the spousal benefit will be less than 35%. The minimum is 32.5%.
Or, as another example, assume your client is 65. Their next birthday brings with it a number of considerations and possibilities related to Social Security claiming, such as:
- 66 represents full retirement age for Social Security purposes for workers born 1943-1954 (inclusive). Each year thereafter full retirement age increases by two months, until capping at age 67 for workers born in 1960 and later.
- 66 likewise is when a spouse can receive a maximum 50% Social Security spousal retirement benefit. At the same time, it’s also the age at which a worker can file and suspend his or her own benefit, permitting a spouse to receive a spousal benefit while the worker continues to earn delayed retirement credits.
- And 66 is when filing a restricted benefit becomes available. Doing so allows the higher earning spouse to receive a lower earning spouse’s retirement benefit (restricting the benefit to the spousal benefit and not claiming their own retirement benefit) while earning delayed retirement credits on their own record. The benefit is 50% of the lower earning spouse’s full retirement benefit. The lower earning spouse can be receiving own retirement benefits before, at, or after full retirement age.
- Lastly, age 66 in when a reduction in Social Security benefits due to excess earnings no longer applies.
Focus on Current Considerations
For younger clients, say in their early 50s, triggers that are still a decade off hold little interest. Keep their planning manageable. Concentrating on information related to their age range is simpler and easier to digest. Perhaps a general understanding of the difference between early, full and late retirement would build awareness of the need to commence more comprehensive planning.