Planning today can make a big difference in your retirement lifestyle tomorrow.
Once you leave the workforce, the years that follow can be all that you want them to be—if you pave the way with a comprehensive financial plan that includes your Social Security income.
Your plan should be based on what you know today and flexible enough to adapt to any changes—like unforeseen personal circumstances or developments that come out of Washington.
Social Security can be a valuable tool to help bridge any gap you may have between your expected sources of income and your expenses.
Think of Social Security as a unique planning tool with features that other retirement plans like IRAs and 401(k)s don't have.
Guaranteed income
Similar to an income annuity, Social Security benefits are guaranteed and provide a solid foundation for your ability to meet your expenses.
Inflation protection
Unlike other retirement income sources, Social Security benefits are adjusted to keep pace with inflation. These cost-of-living increases, which started in 1975 with 8%, have ranged from no increase to 14.3%.
A hedge against longevity
Social Security is one benefit you can't outlive. It's like having an insurance policy against running out of money.
Protection against the markets
The U.S. government backs Social Security, so your benefits are immune from the markets' ups and downs.
Tax advantages
Up to 85% of Social Security benefits—never 100%—may be taxed, making these benefits tax-efficient compared with other retirement income.
Risk-free increases
If you can delay taking benefits past your full retirement age (FRA), you'll get an 8% increase for every year you wait past your FRA. That guaranteed percentage number is hard to match in today's economic environment.
Only 23% of workers say they considered how to maximize their benefits in deciding when to claim Social Security.
Source: Employee Benefit Research Institute's 2018 Retirement Confidence Survey.
If you already have a retirement plan that takes your Social Security benefits into account, that's great! You're one step closer to ensuring your assets last throughout your lifetime.
If you need help with retirement planning, we can get you started.
GET YOUR SOCIAL SECURITY ESTIMATES
The Social Security Administration (SSA) website provides estimates for how much you'll collect if you start receiving benefits at age 62, your full retirement age (FRA) (between 66 and 67), and age 70.
The age at which you're eligible for your full monthly benefits, also known as the primary insurance amount (PIA). The Social Security Administration sometimes refers to full retirement age as "normal retirement age" (NRA).
For many individuals and couples, retirement can span 25 to 30 years, so it's natural to want to ensure your income will last.
That's why it's important to estimate your budget in retirement.
Use our retirement income worksheet
Too often, people think they only have 3 choices when it comes to taking Social Security:
Depending on your needs, you can start collecting Social Security anytime between ages 62 and 70. The key is to remain flexible so that you can respond to what's happening in your life.
Should you consider a break-even analysis?
See how it works: It pays to wait
Too often, people think they only have 3 choices when it comes to taking Social Security:
Depending on your needs, you can start collecting Social Security anytime between ages 62 and 70. The key is to remain flexible so that you can respond to what's happening in your life.
Should you consider a break-even analysis?
See how it works: It pays to wait
It's becoming more and more common for those who've reached retirement age to continue to work. Some need the money while others simply want to keep busy or enjoy the social interaction.
If you haven't saved as much as you'd hoped, working longer can help you fill the financial gaps in your retirement plan.
You can continue to contribute to employer plans and make catch-up contributions that will grow tax-deferred. You may even be able to postpone drawing from your savings.
And remember, if you delay taking Social Security, your benefits can continue to grow.
If you decide to work either full- or part-time, you should know how collecting a paycheck will affect your Social Security benefits.
A type of account created by the IRS that offers tax benefits when you use it to save for retirement.
A financial product typically used by investors to save tax-deferred for retirement or to generate regular income payments in retirement.
An arrangement under which an employer—and sometimes the employee—makes payments toward retirement, disability, or death benefits for employees who meet certain criteria. Types of pension plans include defined benefit plans, defined contribution plans, employee stock ownership plans, money purchase plans, profit-sharing plans, stock bonus plans, thrift plans, and target benefit plans.
This chart shows the top 5 monthly expenses of the typical American household: $682 for mortgage or rent; $302 for groceries; $166 for car expenses; $61 for household necessities; and $50 for clothing.
The age at which you're eligible for your full monthly benefits, also known as the primary insurance amount (PIA). The Social Security Administration sometimes refers to full retirement age as "normal retirement age" (NRA).
The question many people wrestle with in trying to decide when to take Social Security is: When will I come out ahead?
The decision as to the "right" time to claim Social Security has often been based on a break-even analysis of a retiree's expected benefits, if claimed at different ages, versus his or her life expectancy. The break-even point is the age at which the benefit amounts intersect.
In other words, will the money you'll get by claiming early and getting smaller checks for potentially a longer period of time be more than what you'll get by waiting and getting larger checks for potentially a shorter period of time?
Case study
John is 61 and his full retirement age (FRA) is 66 and 6 months. He gets the following monthly estimates of his benefits by logging on to his account on ssa.gov:
Here are his break-even points for claiming at various ages.
Source: Vanguard calculation. Notes: Figure shows the cumulative net present value of expected benefits at various claiming ages using a 1% discount rate. Amounts are presented in real terms and don't include estimates of cost-of-living adjustments.
The limitations of break-even analysis
Simply looking at a lifetime lump sum ignores 2 key features of Social Security:
A big concern for most retirees is the risk of outliving their savings. In the case of our hypothetical 61-year-old, Social Security life expectancy tables show his median life expectancy is about equal to the break-even age if he claims Social Security at FRA versus 70.
So if you can afford to do so, deferring Social Security for a few years (even past your FRA to the maximum benefit at age 70) increases your lifetime monthly benefit. And that can help you bridge any income gap you may have in meeting your expenses.
The question many people wrestle with in trying to decide when to take Social Security is: When will I come out ahead?
The decision as to the "right" time to claim Social Security has often been based on a break-even analysis of a retiree's expected benefits, if claimed at different ages, versus his or her life expectancy. The break-even point is the age at which the benefit amounts intersect.
In other words, will the money you'll get by claiming early and getting smaller checks for potentially a longer period of time be more than what you'll get by waiting and getting larger checks for potentially a shorter period of time?
Case study
John is 61 and his full retirement age (FRA) is 66 and 6 months. He gets the following monthly estimates of his benefits by logging on to his account on ssa.gov:
Here are his break-even points for claiming at various ages.
Source: Vanguard calculation. Notes: Figure shows the cumulative net present value of expected benefits at various claiming ages using a 1% discount rate. Amounts are presented in real terms and don't include estimates of cost-of-living adjustments.
The limitations of break-even analysis
Simply looking at a lifetime lump sum ignores 2 key features of Social Security:
A big concern for most retirees is the risk of outliving their savings. In the case of our hypothetical 61-year-old, Social Security life expectancy tables show his median life expectancy is about equal to the break-even age if he claims Social Security at FRA versus 70.
So if you can afford to do so, deferring Social Security for a few years (even past your FRA to the maximum benefit at age 70) increases your lifetime monthly benefit. And that can help you bridge any income gap you may have in meeting your expenses.
Anna, age 62, is deciding when she should file for Social Security benefits. She's eligible for a monthly benefit of $1,200 now. If she waits until her full retirement age, 66, she'll receive $1,600 a month. And if she delays until she's 70, she'll receive $2,112 a month.
Source: Social Security Administration. Hypothetical example for illustration purposes.
Anna, age 62, is deciding when she should file for Social Security benefits. She's eligible for a monthly benefit of $1,200 now. If she waits until her full retirement age, 66, she'll receive $1,600 a month. And if she delays until she's 70, she'll receive $2,112 a month.
Source: Social Security Administration. Hypothetical example for illustration purposes.
An additional amount that taxpayers age 50 or older can invest for retirement on a tax-deferred basis.
Delaying the payment of income taxes on earnings generated in an investment account. For example, if you have a traditional IRA, you don't pay income taxes on the interest, dividends, or capital gains accumulating in the account until you begin making withdrawals.
| AGE YOU START COLLECTING | PERCENTAGE OF BENEFITS |
62 (earliest possible) |
75.0% |
| 63 | 80.0% |
| 64 | 86.7% |
| 65 | 93.3% |
| 66 (full retirement age) | 100.0% |
| 67 | 108.0% |
| 68 | 116.0% |
| 69 | 124.0% |
| 70 (latest possible) | 132.0% |
| AGE YOU START COLLECTING | PERCENTAGE OF BENEFITS |
62 (earliest possible) |
74.2% |
| 63 | 79.2% |
| 64 | 85.6% |
| 65 | 92.2% |
| 66 (full retirement age) | 98.9% |
66 and 2 months (full retirement age) |
100.0% |
| 67 | 106.7% |
| 68 | 114.7% |
69 |
122.7% |
| 70 (latest possible) | 130.7% |
| AGE YOU START COLLECTING | PERCENTAGE OF BENEFITS |
62 (earliest possible) |
73.3% |
| 63 | 78.3% |
| 64 | 84.4% |
| 65 | 91.1% |
| 66 | 97.8% |
66 and 4 months (full retirement age) |
100.0% |
| 67 | 105.3% |
| 68 | 113.3% |
69 |
121.3% |
| 70 (latest possible) | 129.3% |
| AGE YOU START COLLECTING | PERCENTAGE OF BENEFITS |
62 (earliest possible) |
72.5% |
| 63 | 77.5% |
| 64 | 83.3% |
| 65 | 90.0% |
| 66 | 96.7% |
66 and 6 months (full retirement age) |
100.0% |
| 67 | 104.0% |
| 68 | 112.0% |
69 |
120.0% |
| 70 (latest possible) | 128.0% |
| AGE YOU START COLLECTING | PERCENTAGE OF BENEFITS |
62 (earliest possible) |
71.7% |
| 63 | 76.7% |
| 64 | 82.2% |
| 65 | 88.9% |
| 66 | 95.6% |
66 and 8 months (full retirement age) |
100.0% |
| 67 | 102.7% |
| 68 | 110.7% |
69 |
118.7% |
| 70 (latest possible) | 126.7% |
| AGE YOU START COLLECTING | PERCENTAGE OF BENEFITS |
62 (earliest possible) |
70.8% |
| 63 | 75.8% |
| 64 | 81.1% |
| 65 | 87.8% |
| 66 | 94.4% |
66 and 10 months (full retirement age) |
100.0% |
| 67 | 101.3% |
| 68 | 109.3% |
69 |
117.3% |
| 70 (latest possible) | 125.3% |
| AGE YOU START COLLECTING | PERCENTAGE OF BENEFITS |
62 (earliest possible) |
70% |
| 63 | 75.0% |
| 64 | 80.0% |
| 65 | 86.7% |
| 66 | 93.3% |
67 |
100.0% |
| 68 | 108.0% |
| 69 | 116.0% |
| 70 (latest possible) | 124.0% |
Our clients share a commitment to a long-term, disciplined way of investing that's helped millions of people retire with confidence.
But the journey doesn't end once you're retired. We can help you make your hard-earned money last throughout your retirement years.
When to collect Social Security is an obvious retirement decision you have to make, but there are other questions you may not have thought of. Which accounts should you spend from first? Is a Roth conversion appropriate for any of your accounts?
While representatives from the Social Security Administration (SSA) are trained to help get you through the system, they can't create a financial plan or tell you how to maximize your benefits.
That's where Vanguard Personal Advisor Services® can help. You'll also get a custom financial plan, ongoing portfolio oversight, investment coaching, and real-time goal tracking—all at a low cost.
CONSOLIDATE YOUR RETIREMENT SAVINGS AT VANGUARD
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