The Planner's Perspective: Social Security - Bridging the Gap

By Paul Morrone CFP®, CPA, MSA

What many don’t realize is that social security is their biggest retirement asset, and understandably so. When your net worth is laid out on a piece of paper, you don’t see a value of your future social security benefit, nor can you pass your benefit as part of your estate to your children or grandchildren. Given the unique set of circumstances surrounding social security, one of the most pressing questions for retirees is when to ‘take the money.’

For those that plan to work until (or beyond) their full retirement age, the answer may be relatively easy. Depending upon the level of your earned income, you should probably not elect benefits if you are gainfully employed and earning more than $16,920 (2017 – indexed for inflation annually). Earned income above this limit will trigger a reduction of benefits, and at the point your income exceeds about $65,000 your benefit will be eliminated completely. Remember, this only includes earned income and does not count passive income, retirement plan distributions or pension payments (nor does it include your spouse’s earned income if you are married). In the year that you turn your full retirement age, you can earn $44,800 (2017) without jeopardizing any of your social security benefits and it is important to remain cognizant of these limits to avoid any potential reduction in benefits received in a given year.

The question becomes a bit more difficult to answer for those that retire early and are not working by age 62. Here there are both qualitative and quantitative questions that need to be answered in order to make an education decision as to what is best. Before making any elections, consider the following:

• What are your other known income sources between 62-66?
• How is your health? Do you believe longevity will be an issue?
• What assets have you accumulated to support you in retirement?
• Can your assets and income sustain the necessary cash flow for these years without using your social security benefit?
• Will withdrawals from your assets compromise their availability later in retirement?
• Are healthcare costs material and how will they impact your annual cash flow?
• How will social security income affect your income taxes?
• What will the impact be on your social security benefit if you take it early as opposed to waiting?

Having a meaningful conversation around these topics can help shed light as to which approach is best for you and your family.

_{Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual}