Balancing Social Security Benefits with Personal Retirement Savings

Balancing Social Security Benefits with Personal Retirement Savings

There are many factors that go into preparing financially for retirement, but one of the most important is understanding how your retirement savings will complement your Social Security benefit—and ultimately, when you should start claiming your benefit. Here are key considerations and tips that can help you start planning.

Social Security benefits planning: When to start collecting Social Security

Social Security was originally designed to provide an equal benefit to recipients regardless of when they started claiming it.

  • Someone taking their Social Security benefit early could receive a lesser amount for a longer period.
  • A person who waited to take their benefit could receive a higher amount for a shorter period.

Over time, the total benefits paid were designed to equal out under a typical life expectancy, around 77 to 80 years, depending on the recipient’s marital status. But today, life expectancies are longer, which influences how much of a Social Security benefit an individual can receive.

  • A person can receive a larger total benefit if they choose to delay taking their benefit and live to at least age 77 or older.
  • For a person who lives past age 85, it can be a significant sum.

What’s the best age to start taking Social Security?

Let’s look at a real-world example. In this case, the full retirement age for two individuals is age 67. At that age, they are both eligible to collect a Social Security benefit of $2,000 per month.

  • Individual A collects Social Security early at age 62. They receive $1,400 per month to offset the early collection.
  • Individual B waits to collect Social Security until age 70. They receive $2,480 per month to offset the delayed collection.

 

Individual A

Individual B

Age Social Security Benefit Begins

62

70

Monthly Benefit

$1,400

$2,480

 

With these variables, both individuals' total benefits paid are equal at age 80. However, if both individuals live past age 80, Individual B would start to receive $1,080 more per month than Individual A. If they both live to age 90, Individual B would receive nearly $130,000 more in Social Security benefits than Individual A.

This shows why life expectancy plays a major role for many in deciding when they start claiming their Social Security benefit.

The takeaway? Consider your personal health and your family history—if you expect to live past age 80, waiting until age 70 to collect Social Security could be a smart financial decision.

You might also be interested in: When to Start Saving for Retirement

Four tips for preparing a balanced retirement strategy (h2)

Although there is no one-size-fits-all solution to retirement savings, it’s important to have a retirement strategy in place. Successfully balancing your Social Security benefit and your personal retirement savings strategy is one of the best ways to prepare yourself for retirement readiness.

  1. Plan your Social Security strategy early.

    Look at Social Security benefits and your employer’s retirement plan early in your career. This will give you a good idea if you're contributing enough to fund your retirement. Ideally, your monthly Social Security benefit combined with your personal retirement savings should comprise enough of your income to lead a comfortable lifestyle in retirement.

  2. Start saving early in your career and regularly contribute to your retirement plan.

    Joining and contributing to your employer’s retirement plan as early as possible enables you to take advantage of one of its most powerful features—compound interest. By investing early and staying invested, you’ll give your money more time to grow.

  3. Work with a trusted financial advisor.

    A financial professional can help you set individual retirement goals and work with you to create a reasonable retirement plan. Careful monitoring over your career can help you make sure you’re on track to achieve retirement success.

  4. Increase contributions to your retirement plan as often as possible.

    Thanks to compound interest, a small change in your contribution rate can make a big difference in your overall account balance.

    Increasing your contribution annually, or at times of income growth such as when you earn a raise or transition to a higher-paying job, will boost your retirement balance and set you up for long-term success. Learn more about how much you can contribute to your 401(k) each year.

Putting your balanced retirement strategy into practice

Retirement readiness often is the result of a careful balance between your retirement plan savings and Social Security strategy. Use our retirement savings resources to help you reach your retirement goals—or contact us for ways you can achieve retirement readiness.

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