5 Reasons You Should Speak to a Financial Advisor Before Claiming Social Security Benefits
Written by
Yaël Bizouati-Kennedy
Edited by
Molly Sullivan
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Deciding when to start claiming Social Security is a major milestone and a crucial decision that can have wide-ranging implications. While you can start receiving benefits as early as 62, delaying claiming them increases the amount you will receive. That’s one of the reasons why speaking to a financial advisor before making that decision could be instrumental in planning for a comfortable retirement.
Indeed, a Schroders survey found that “having an advisor and a plan pays off”- and that while 72% of Americans are aware that they could receive higher benefits by waiting, a meager 10% are planning to do so.
Experts say deciding when to claim Social Security benefits can initially seem very simple but, in fact, has many nuances and implications that we need to keep in mind.
“The negative impact of making the wrong decision could be one of the costliest mistakes made in your retirement financial strategy,” said Bobbi Rebell, CFP, founder of Financial Wellness Strategies and author of Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Be Everyday Money Smart.
Here are reasons why financial experts say it’s a good idea to talk to an advisor before claiming benefits.
They Can Help Decide When to Claim
One of the key decisions is deciding at what age to claim benefits. To that end, financial advisors can provide expert guidance on when to start claiming benefits based on your individual financial situation and goals.
“They can also help you understand the impact of claiming benefits at different ages, as well as any potential penalties or restrictions that may apply,” said Michael Collins, CFA, founder, CEO, WinCap Financial.
They Can Optimize Your Benefit Strategy
As Steve Sexton, CEO of Sexton Advisory Group, explained, there are 567 different ways to elect benefits, so it’s crucial to be educated on which option will provide the highest income in retirement.
“The fact there are so many options highlights the complexity of Social Security benefits and the importance of selecting the right strategy,” he said.
For instance, while waiting until age 70 can increase monthly payments, it may also not always be the best choice for everyone. In turn, he said, an advisor can help assess individual circumstances such as health, life expectancy, and financial needs to determine the optimal time to start collecting benefits.
It can Increase the Value of Your Benefits
When we think about Social Security, we often focus on the monthly payment.
Yet, Dana Anspach, CFP, RMA, founder and CEO of Sensible Money, noted that it’s important to realize that this stream of payments holds significant value.
In fact, she said, the lump sum savings required to generate your Social Security benefits for life typically exceed $500,000 for singles and surpass a million for couples.
“A well-informed decision about your Social Security benefits can potentially increase this value by up to $100,000,” added Anspach.
They Can Help With Tax Planning
Speaking with a financial advisor can also help you with the tax planning aspect of Social Security.
For instance, if you’re single and you receive Social Security and your adjusted gross income exceeds $34,000, you will be taxed 85% of Social Security.
“This demonstrates how crucial it is to understand the tax implications of Social Security benefits,” said Sexton, adding that a financial advisor can help you develop a tax-efficient strategy, such as coordinating distributions from retirement accounts and managing investment income, to minimize your taxable Social Security benefits.
They Can Help you Understand Different Benefits
Rebell said it is important for married couples, in particular, to understand the rules around spouse and survivor benefits and different ways to maximize those benefits.
For instance, Sexton argued thatanother big mistake is neglecting a spouse’s benefits — something an advisor can help you with to ensure you and your spouse are maximizing your combined benefits.
“If you are collecting Social Security benefits and your spouse is also collecting benefits, your spouse may be eligible for collecting extra spousal benefits. Many are unaware of this additional income stream, which can provide significant financial support,” he said.
In that same vein, understanding survivor and divorce benefits is key, and advisors can help you navigate these rules, he added.
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