Many Americans expect Social Security to be important to their retirement income. However, the way benefits are claimed and integrated with other financial resources — such as investments, pensions, and tax strategies – can significantly impact retirement planning.
At Concentric Wealth Management, we view Social Security as one part of a broader retirement strategy. Because each individual’s situation is unique, there is no one-size-fits-all approach.
Understanding the Basics of Social Security
Before considering how Social Security fits into your retirement plan, it helps to understand some of the key features:
- Eligibility & Benefits: Benefits are based on your 35 highest-earning years (adjusted for inflation). At least 40 work credits (generally about 10 years of work) are required.
- Claiming Ages: Benefits may be claimed as early as age 62, at your Full Retirement Age (FRA, typically 66–67), or delayed until age 70. Claiming early reduces benefits, while delaying generally increases them.
- Cost-of-Living Adjustments (COLA): Annual adjustments are made to help account for inflation.
The Role of Social Security in Your Retirement Portfolio
Social Security provides a steady stream of income that can help reduce reliance on investment accounts. However, it is just one element of retirement planning:
- Balancing with Other Accounts: Benefits should be considered alongside 401(k)s, IRAs, pensions, and taxable accounts.
- Risk Management: Because payments are not linked to market performance, they can provide stability during periods of market volatility.
Claiming Strategies to Maximize Benefits
When to claim Social Security is a personal decision, and different approaches may affect your long-term income:
- Timing: Delaying benefits may increase monthly payments, while claiming early provides income sooner.
- Spousal & Survivor Benefits: Married couples may benefit from coordinating their claiming strategies.
- Tax Considerations: Depending on income, up to 85% of benefits may be taxable. Coordinating withdrawals from other accounts may help manage tax impact.
Tax & Estate Planning Considerations
Social Security interacts with broader financial planning in meaningful ways:
- Taxation of Benefits: Provisional income rules determine whether benefits are taxable.
- Withdrawal Sequencing: Managing the order in which different accounts are drawn down can help improve after-tax income.
- Legacy Planning: Coordinating Social Security with estate strategies may help support surviving spouses and heirs.
Common Misconceptions About Social Security
Despite its importance, myths often cloud Social Security planning:
“Social Security will run out soon.” While the trust funds face challenges, benefits continue to be paid, though future adjustments are possible.
“Social Security will cover all my needs.” On average, benefits replace about 40% of pre-retirement earnings, so additional savings are typically necessary.
“There’s a single best strategy.” The right approach depends on factors like health, marital status, work history, and personal goals.
Conclusion: Building a Holistic Strategy
Social Security is an important component of retirement planning, but it should be considered alongside investments, tax strategies, and estate planning. Thoughtful coordination can help individuals make more informed decisions about their financial future.
At Concentric Wealth Management, we provide education and guidance to help clients explore how Social Security may fit into their overall retirement strategy.
Are you ready to maximize your Social Security benefits and build a retirement strategy tailored to you? Schedule a consultation with a Concentric advisor today.