Time to read: 5 minutes | 

Use of a Social Security claiming strategy plays an important role in most retirement income plans.  However, the rules are complex and change often.  In addition, the best claiming strategy is highly dependent on one’s unique situation and preferences.  Many intelligent people rely on an incomplete understanding of their options or they use one-size-fits-all online calculators when deciding when to claim Social Security.  By doing this, they can miss out on valuable benefits.  Often, they learn of their mistake when it’s too late.

At BWM Financial, we assist clients in understanding their options and the relevant tradeoffs when considering the best strategy.  We know the right questions to ask to help clients avoid common pitfalls.  Most importantly, we’re able to evaluate different strategies in the context of each client’s unique retirement plan.

Mistakes to Avoid – Common Misconceptions and Online Calculators

Because claiming rules are complex and filled with exceptions, it’s tempting to rely on simple “rules” or online calculators when considering benefits.

We frequently hear statements from clients regarding Social Security – many of which are misleading, even though they are grounded in real rules.

  • “Social Security is an investment that grows at a guaranteed rate of 8% a year so I should wait to file.”
  • “My spouse will receive half of my benefits.”
  • “I cannot work and take benefits or I’ll be taxed.”

Online calculators can be helpful, but many fail to consider most of the pertinent factors that should be considered when making such an important decision:

  • Income sources, expenses, your marriage status, work plans, and spousal benefits
  • Your unknown variables for longevity and future returns of your investment portfolio
  • Survivor benefits for married couples
  • The cost of spending down portfolio assets, if you delay claiming
  • Increases in inflation and cost of living

A Better Way – Consult Your Plan and Enlist the Help of a Professional

We find the best results happen when the following pieces are put into place:

  • BWM Financial reviews copies of your current Social Security benefit estimates (found online at ssa.gov).
  • We discuss your health, family longevity, marriage and work history, etc.
  • Your financial plan is accurate and up to date with your current balance sheet, estimated expenses, income sources, etc.
  • You confirm with Social Security before finalizing your claiming strategy.

Once, we have the above items in place, we can stress test your financial plan to determine the effect of different claiming strategies on your probability of successfully meeting your financial goals.  In addition, we’re able to project your breakeven age and total estimated increase or reduction in your lifetime cash flow for different claiming dates.  While these projections have their limits, we find they are far superior tools compared to simple calculators.

We can also help educate you on the aspects of claiming which are less concrete but just as important as number crunching.  For example, early benefits claiming may be beneficial if you experience poor health.  Or you might place a high importance on the “fun value” of having more income earlier in retirement when travel and discretionary expenses are more enjoyable.

If the market conditions are poor when you retire, claiming Social Security early may be advantageous. Funding your monthly income needs from your portfolio becomes more expensive in bear markets because you need to sell more assets to meet those needs. Taking Social Security benefits can lessen the burden on your portfolio.  Or you may have concerns about longevity due to a parent who lived into his or her 90’s.  In that case, delayed claiming may offer the comfort of a larger income stream for life.

Let’s Talk About It

Social Security claiming is an art and a science.  A trusted advisor can help you gather the necessary information and assist you in understanding what’s important and what’s not.  Having a realistic retirement plan allows you to view the decision from an objective angle.  If different strategies yield similar results in your financial plan, use personal preferences as a tie breaker.  Confirm your intended claiming strategy with the Social Security Administration and apply for benefits with confidence.

We are happy to answer your Social Security questions, no matter where you are in the retirement planning stages.