What You Should Know about Social Security Before Retirement

For most Americans, Social Security benefits will be an important piece of their retirement plan. For some - as many as 40% - it’s their sole source of income. As a fresh new month and season arrives, now is a great time to learn how to maximize your benefits.

Retirement is typically defined as the point in which you begin to draw on your assets - including Social Security benefits. These assets may come in the form of an Individual Retirement Account (IRA), personal savings and investments, continued employment or other financial sources.

Social Security, while often oversimplified, is an important piece of that mix and should be carefully examined to ensure that you maximize it during your retirement.

At NJM Wealth Preservation Strategies, our goal is to put you back in control and actively ensure the security of your retirement.

The Basics of Social Security

Social Security should be an important part of your retirement plan, as it offers a firm financial footing that other retirement sources may not. Based on a percentage of your pre-retirement income - with that number pulled from your highest 35 earning years - Social Security offers a consistent and nearly risk free income source.

That being said, It’s important that you diversify and have multiple asset sources. It’s also paramount to consider when to begin drawing benefits, and the tax ramifications of the state in which you choose to retire.

Beyond this, Social Security benefits not only affect you, but have a lasting impact on those around you. It’s not simply just a source of income, but a tool that affects disability, family, survivors and medicare.

Interested in learning more about Social Security benefits? Schedule a consultation with us today.

The 2022 Social Security COLA & 2023 Projections

Social Security benefits ebb and flow and have adjustments based on the current cost of goods and services. With the recent increase in everything from gas to groceries, an adjustment was made affecting the 2022 year for ~70M Americans to the tune of 5.9%. These adjustments are carefully considered by the Department of Labor’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). 

What does this mean? If you begin drawing benefits prior to the end of the 2022 year, you would be receiving a larger benefit than you would have received for the 2021 year. 

The 2023 COLA information will be released on October 13th, 2022, at 8:30AM EST. While we don’t have the hard numbers yet, we can make an educated guess. Based on current U.S. inflation rates - the highest in four decades - we can assume that the COLA for 2023 will be anywhere from ~8% to 9%. This would be the largest increase in over 40 years.

Other Points to Consider

  1. Your retirement age is based on the year you were born: Did you know that if you were born after 1960, your retirement age is defined as 67? This means to take full retirement, you must retire no earlier than that age. It’s worth noting that if you delay retirement until the age of 70 you can maximize your benefits and receive 124% of full retirement.
  2. Payouts could potentially be lowered: Social Security could potentially run out by 2034, which is one year earlier than a 2020 report by the Social Security board had estimated. The worst case scenario would be a 22% reduction in benefits, according to the 2021 report by the Social Security board.
  3. Your spouse may be eligible for benefits: Even if your spouse would not draw Social Security benefits themselves, they may be eligible for benefits if they are 62 years of age. It’s important to note that if your spouse does work, that amount may be affected, although they can potentially draw from both your benefit and theirs.
  4. Be aware of your health insurance coverage: If you choose to retire early and are no longer covered under employer health insurance, you may lose health insurance altogether. While there are exceptions, most Americans will not be eligible for Medicare until the age of 65.
  5. Retire early and invest?: While choosing full retirement is the option that fits most, many will choose to retire early and invest their Social Security benefit. This option could allow for a compounding of your benefit, but it comes with risk. We would recommend speaking with a Wealth Preservation Specialist if this route is considered. 

Final Thoughts

We’ve touched on multiple important pieces of information here, but there are many questions and topics to cover beyond these. What percentage of my retirement should Social Security make up? Am I eligible for my ex-spouse’s benefits? What other family members qualify for my benefits? While we would love to cover all of this here, there are 32 pages in the Social Security Act and numerous regulations and references to be aware of. 

Here at NJM, our Wealth Preservation Specialist is a true fiduciary. We value our foundation of legal and ethical trust with transparency and have proudly helped 1000's of families across our great nation secure their financial well-being. 

If you are interested in partnering with a firm who is able to build a portfolio around your best interests and goals, reach out today. You will learn how so many aspiring and official retirees like yourself have been placed back in control of their retirement portfolio.