Maximizing vs. Optimizing Your Social Security

CANFIELD, Ohio — Social Security can be an intimidating topic for those who are starting to look into their options for taking out their money for retirement. This webinar gives a high level overview of what your options are for maximizing and optimizing your Social Security depending on your personal retirement plans.

The webinar was led by Sam Morocco, Retirement Income Certified Professional of family-owned Gem Young Insurance Wealth Advisors based in Canfield. Sam has over 30 years of experience helping people plan for retirement and optimize their Social Security take home amount. In planning for retirement, there is a lot to think about; Sam helps to breakdown the basics of how to maintain your standard of living by optimizing your Social Security take home and retirement benefits.

Historically, 54% of individuals have filed early for reduced Social Security benefits, with only 5% of people filing at age 70. The time you file can have a significant impact on your take home amount, so it is important to understand and weigh the pros and cons of when to file. The Social Security system calculates the 35 highest paying years for you, so that is another important note to consider when estimating your take home amount. It is important to know you have two ways of thinking about Social Security take home – you can maximize it to take out more earlier, or optimize it to take it out at a later date but take home more money.

“Consider your [Social Security] filing decisions for your overall retirement plan and whether you need to maximize your take home amount or optimize your take home amount,” Sam Morocco, RCIP of Gem Young.

The most important thing to consider for your Social Security benefits is what age you want to start taking home your money. There are pros and cons to both, but by trying to hold out and delaying taking benefits early will maximize your take home amount later in life. To shed some perspective on taking Social Security early versus waiting until you are 70, below is an example chart for a married couple of what their varying take home amounts would be.

  • Spouse files for restricted benefits at age 66 years and 11 months, then files standard at age 70; other spouse files standard at age 62 years and 1 month. Cumulative benefit = $1,784,943
  • Spouses both file standard at their full retirement age (FRA) (66 for spouse one and 66 and 8 months for spouse 2). Cumulative benefit = $1,565,265

The example above is a difference in benefits of 13.1%. That $200,000+ difference could be a drastic change in standard of living for waiting just a few months longer to file for Social Security.

How Is Your Social Security Determined?

Social Security is determined by the amount received each month if benefits start at FRA. It is based on lifetime Social Security earnings adjusted for inflation. You are able to start withdrawing from your Social Security at age 62, but that will be a reduced amount like noted above. Once you hit your FRA, you are eligible to start receiving 100% of benefits.

Social Security Determinations:

  • Average indexed monthly earnings (AIME) over highest 35 years of earnings
  • Benefit reflects a percentage of average monthly earnings
  • A higher earner receives a smaller percentage than low-wage earners
  • Maximum PIA for 2020 is $3,011

Social Security Benefit Tax Considerations

There are other considerations besides age when determining when is best for you to take home Social Security. Tax considerations are a big part of determining how much you are able to live on when it comes to retirement planning. Below are a few key notes about what is/is not taxable.

Taxable Retirement Income

  • Pension Income
  • Retirement Accounts (401(k), IRA)
  • Interest and Dividend Income

Partially Taxable Retirement Income

  • Social Security – up to 85% taxed
  • Immediate annuity income
  • Cash-value of life insurance

Tax-free Retirement Income

  • Roth IRAs and Roth 401(k)s
  • Interest from municipal bond
  • Loans from life insurance policies

“I compare Social Security to driving a car. To maximize your speed, you are going to choose a Lamborghini because you want to get the most out of optimize your driving experience, you are going to choose a BMW because you are considering your lifestyle and how it all fits,” Sam Morocco, RCIP at Gem Young.

Simplifying Social Security Decisions

This topic can be overwhelming for those who are not sure of all of the ways that you can optimize your Social Security take home. To simplify your Social Security decisions, we have a few resources and tools to help you. Nationwide Financial has a tool called the Social Security 360 Analyzer? tool that is very useful for those beginning to plan for retirement. Planning helps you to anticipate the gaps in income or any other line items you may not expect when it comes time to retire.

To learn more about how to optimize your Social Security and retirement planning with Sam Morocco, RCIP at Gem Young, click here.

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