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Social Security (Part 1)

An often overlooked component of retirement planning is how best to utilize your Social Security benefits. Some financial advisors recommend not relying on Social Security because of concerns about the system running out of money. In fact, actuarial analyses have projected that Social Security reserves will run dry around 2035. Although payroll taxes will continue to be collected, there will be insufficient funds to pay out all the benefits unless legislation is enacted to put Social Security on a more sustainable path. Therefore, it is best to think of Social Security as supplemental retirement income, sort of a bonus after you’ve already secured a comfortable retirement with personal savings and employer-sponsored retirement accounts. This newsletter will highlight strategies for maximizing your Social Security payments.

Social Security payments are based on how much you earn during your working career, up to a specified annual limit (currently $142,800). Your 35 best years of earnings are factored into the calculation with higher lifetime earnings resulting in higher benefits. One way to maximize your payments is to work for 35 years or more, while meeting or exceeding the annual earnings limit. If you have fewer than 35 years with earnings meeting the annual limit, the years with lower earnings will be averaged into the calculation, which will lower your eventual Social Security payments. To see a record of your annual earnings, you can review your yearly Social Security statement or sign up securely online at

You are eligible to start receiving Social Security payments at age 62, but your monthly payments will be substantially higher if you wait until full retirement age, which is currently 66. If you start Social Security benefits at age 62, your monthly payments will be permanently reduced by 25% compared to starting at age 66. The government is gradually ratcheting up the retirement age, so if you were born after 1959, your full retirement age is 67. If you are in this category and start Social Security at age 62, your monthly payments will be reduced by 32%. You can further boost your Social Security payments by waiting past your full retirement age to begin receiving benefits. Payments increase by 8% for each year you wait after your full retirement age until 70, which is the highest age at which you can start receiving payments.

For most of our clients, we recommend that both spouses wait at least until full retirement age to begin collecting Social Security payments, and in some cases, we advise waiting until age 70. If you have urgent cash flow needs, serious health concerns, or a poor family history of longevity, however, it may make sense to begin collecting Social Security payments much earlier.

These strategies for maximizing your Social Security payments are surprisingly effective. A 70 year old female retiree in 2021 who has used the above strategies will receive approximately $46,740 per year for the rest of her life, with upward adjustments for inflation. If she was married for at least 10 years, there will be additional spousal payments up to half of her benefit amount, even if her spouse never worked, resulting in a combined annual payment of approximately $70,110. Since these payments are for the rest of your life, Social Security can serve as a form of longevity insurance in case you outlive your other retirement savings. Assuming that health care costs are covered, living expenses tend to diminish in one’s 80s and 90s, so these benefits can make a significant contribution.

Unfortunately, we’ve only scratched the surface of this complex topic. We’ll delve into some more nuances for optimizing your Social Security benefits in a future newsletter. As always, please feel free to contact me with any questions or comments.

Jeffrey J. Brown, MD CFA

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