Social Security Strategy – Choose the Right One
Retirees have now started using a new Social Security strategy – claim benefits early and invest those funds in the stock market. Thanks to a strong bull market for the last nine years, this strategy has paid off for many. However, this is a strategy that you use at your own risk. Markets recently have been extremely volatile, with wild swings in both directions, and while most experts do not believe that this volatility means an end to the bull-run, there are signs that the swings are here to stay. This makes investing a lot more risky than before.
So, before you plan your Social Security strategy, here are a few points you should keep in mind.
Benefit Amounts Will Be More If You Wait
You are allowed to claim your Social Security benefits from the age of 62. However, that means you are claiming your benefits early. You need to reach your full retirement age to be able to claim 100% of your Social Security benefit amount. You can lose up to 30% of your benefit amount if you claim your Social Security benefits early. And the best part is that if you wait to claim your benefits till after your full retirement age, you can get up to 8% extra per year till the age of 70.
The Market Cannot Beat a Consistent 8% Return
According to the Managing Director of Oceanic Capital Management in New Jersey, Thomas Yorke, it is almost impossible for any investor to beat a consistent 8% return on your investments. And that is what you get if you wait to claim your Social Security benefits beyond your full retirement age. In you decide to go with a Social Security strategy of claiming benefits early, you may manage to get an 8% or more return for a couple of years but the market volatility is such that it cannot be sustained. And if you lose that money close to retirement, then things could get really difficult for you; it is really difficult to make up the money you have lost.
Spousal Benefits Could Be Impacted
If you are single and terminally ill, then claiming your benefits makes sense. However, if you are married and you don’t expect to live much longer, then waiting till you reach full retirement age (and, if possible, longer) would be best – for your spouse as well as other dependents. If your spouse earns less than you do, then the best Social Security strategy you can adopt for your family is to wait as long as possible before claiming your benefits so that your family is taken care of financially even you are not there.
You Would Need to Make up for the Lost Money
One thing that most people don’t realize is that when you claim your Social Security benefits early, you need to make up for the money you did not get from other sources. And if you live a long life, then that could be tens, maybe hundreds of thousands of dollars lost.
Choosing Social Security Strategy – Losing Money in Taxes
The idea that Social Security benefits are tax free is not true. If you have other sources of income in addition to your benefits payout, then you would have to pay taxes on up to 85% of your Social Security Benefits. You need to pay taxes on your Modified Adjusted Gross Income. It doesn’t matter when you claim your benefits, you will still need to pay taxes if you fall into the relevant tax brackets. At the end of the day, investing in the stock market is a risky Social Security strategy, so think carefully before you take the plunge.