Social Security, a cornerstone of retirement income for millions of Americans, provides crucial financial support during the latter years of life. While Social Security benefits cannot fully replace one's pre-retirement earnings, Clayton K. Shum suggests that fully understanding the program's intricacies and employing effective strategies will help maximize returns and enhance overall retirement security.
There are a significant number of reasons why Clayton K. Shum emphasizes the importance of maximizing social security benefits.
Social Security is a guaranteed source of income in retirement. Unlike investments in the stock market or other assets, Social Security benefits are not subject to market fluctuations. This means that you can count on receiving a steady stream of income in retirement, regardless of how the economy performs.
Social Security benefits are relatively inflation-protected. Social Security benefits are adjusted for inflation each year, which helps to ensure that your purchasing power remains stable for retirement.
Social Security benefits are tax-deferred. This means that you don't have to pay taxes on the money you earn from your work until you start receiving benefits in retirement. This can save you a significant amount of money in taxes over your lifetime.
Social Security benefits can be inherited by your spouse and children. If you die before your spouse or children, they may be eligible to receive survivor benefits. This can provide them with a much-needed financial cushion in case of your absence.
Social Security is a valuable component of a comprehensive retirement plan. By maximizing your Social Security benefits, you can free up more of your own savings to be invested in other assets, such as stocks and bonds. This can help you to better achieve your long-term financial goals.
Clayton K. Shum is excited to share some different ways people can set themselves up to take full advantage of Social Security benefits:
1. Work for at Least 35 Years
The Social Security Administration (SSA) bases benefits on an individual's highest 35 years of earnings. Working for at least 35 years ensures that all eligible years are considered in the benefit calculation, maximizing the potential benefit amount. For every year worked under 35 years, Clayton K. Shum notes that people lose the potential of accumulating a significant amount of money.
2. Delay Claiming Benefits
Social Security benefits are subject to an earnings test, which reduces benefits for individuals who continue to work while receiving benefits. Delaying claiming benefits until full retirement age (FRA), which ranges from 66 to 67 depending on the birth year, allows for the maximum benefit amount to be earned.
3. Consider Spousal Benefits
Clayton K. Shum notes that married couples can strategize to maximize Social Security benefits by considering spousal benefits. A spouse may be eligible for spousal benefits based on their partner's earnings record. The maximum spousal benefit is equal to 50% of the primary beneficiary's benefit at FRA.
4. Understand Survivor Benefits
Survivor benefits provide support to surviving spouses and eligible dependents following the death of a Social Security beneficiary. Understanding survivor benefits and eligibility requirements ensures that dependents will be adequately protected.
5. Review Earnings Statement Regularly
The SSA provides an annual Social Security Statement, which summarizes an individual's earnings history and estimated benefits. Clayton K. Shum notes that regularly reviewing this statement will help identify any errors or discrepancies and ensure accuracy when it comes to benefit calculations.
6. Avoid Early Claiming for Financial Hardship
Early claiming of Social Security benefits, before FRA, results in permanently reduced benefits. Early claiming should only be considered as a last resort in cases of severe financial hardship.
7. Maximize Earnings for the Last Few Years
In the years leading up to retirement, Clayton K. Shum suggests increasing earnings, as it can positively impact Social Security benefits. Working in higher-paying positions or seeking extra part-time employment can boost one’s average indexed monthly earnings, which is a key factor in benefit calculations.
8. Explore Tax-Deferred Retirement Savings
Tax-deferred retirement savings plans, such as 401(k)s and IRAs, can provide additional income sources in retirement. Contributions to these plans are not taxed until withdrawn, which allows for tax-deferred growth and potentially higher returns.
9. Seek Professional Guidance
Navigating the complexities of Social Security can be challenging. As such, it is worth considering the help of a financial advisor like Clayton K. Shum, who can provide personalized guidance and help with developing a strategy that maximizes Social Security returns and optimizes overall retirement income.
10. Stay Informed about Social Security Changes
Social Security rules and regulations can change over time. Staying updated with these changes ensures that individuals are aware of any potential impacts on their benefits and can make informed decisions accordingly.
By implementing these strategies and staying informed about Social Security, individuals can maximize their benefits, enhance their retirement income, and secure a more financially comfortable future.
