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How Social Security Benefits Fit Into Your Retirement Plan Thumbnail

How Social Security Benefits Fit Into Your Retirement Plan

By Daniel Baumgartner & Petra Peters

If you’re thinking about retirement or nearing retirement, you’re probably thinking about Social Security benefits and how to optimize them in order to sustain your desired lifestyle during your golden years. You may be feeling confused or overwhelmed with the wealth of information around retirement timelines, benefit utilization, and withdrawal strategies. With Social Security benefits comprising anywhere from 30-90% of income for people aged 65 and older, it’s important to understand how they fit into your overall retirement plan. In this article we will look at the role of Social Security within a financial plan, the current state of Social Security, and provide some valuable strategies to maximize your benefits. 

The Role of Social Security Benefits

There are three main components to most retirement plans: Social Security, tax-deferred retirement plans such as 401(k)s and IRAs, and withdrawals from savings and investments. 

Pensions have become less and less common as employers shift toward other forms of deferred compensation, and only about 21% of Americans will retire with pension benefits at all

If you are part of the majority of Americans who won’t be able to rely on a pension, without proper planning, your Social Security will play an even bigger role in your retirement plan, and chances are that it won’t be enough by itself.

The Current State of Social Security

No matter how or when you claim your benefits, we believe understanding the current state of the Social Security program, including changes for 2024, is crucial in order to properly plan for retirement. Unfortunately, there are many problems with the current system that make projecting long-term benefits more difficult. Recent estimates suggest that the program will run out of funding by 2034, at which point, if no changes are made, benefit payments may shrink to 80% of what Americans expect.

The issues with the program range from persistently low interest rates and collectively longer retirements, to significantly more beneficiaries and not enough workers contributing to the fund. Taken as a whole, these factors indicate that the Social Security system is currently underfunded and not earning enough to pay off its obligations

The Impact of Social Security Benefits

One of the most important aspects of retirement planning is quantifying how much your retirement will cost versus how much you will receive from Social Security. 

Let’s take a look at today’s numbers

  • Maximum benefit payment at age 62: $2,710 per month
  • Maximum benefit at full retirement age: $3,822 per month
  • Maximum benefit payment if you wait until age 70: $4,873 per month

The average cost of retirement for retirees between the ages of 65-74 is $53,916 annually, or $4,495 per month. When compared to the maximum benefit amounts listed above, this means that if Social Security is your only source of retirement income, you could be looking at a deficit between $301 and $2,131 per month!

It’s easy to see just how big of an impact Social Security can make on your retirement plan, which is why planning ahead is a vital part of maximizing your benefits.

When to Claim Social Security Benefits

Planning ahead involves understanding two important claiming decisions that can help to maximize your total lifetime benefit:

1. Your Benefits

Social Security benefits can be claimed between ages 62 and 70. However, the timing of benefits will impact the total amount received. Benefits claimed at 62 will result in a reduced monthly amount, while waiting until full retirement age will allow you to receive your full primary insurance amount, which is the full benefit that you have earned based on the amount you’ve paid into the Social Security system. If you don’t need your benefit at this age, you can delay your claim. For each year you delay, your benefit will increase by 8% until it caps out at age 70.

2. Spousal Benefits

Deciding how and when to claim spousal benefits will depend on your unique financial situation and should be reviewed thoroughly in the context of your overall retirement income plan. In general, the lower-earning spouse may choose to begin collecting benefits early or at full retirement age, while the higher-earning spouse may wait until age 70. This will allow the couple to make use of the lower benefit, while allowing the higher benefit to grow to its maximum amount.

A Tailored Retirement Strategy

Social Security is just one important piece of the retirement planning puzzle. It’s important to have a strategy that incorporates all aspects of your financial situation. At Terra Nova Asset Management, we specialize in helping high-net-worth individuals, whether based in the U.S. or in Europe, create a comprehensive financial and investment plan. Our team works closely with you to understand your unique goals, assess your financial situation, and develop a personalized strategy that maximizes the benefits of Social Security and aligns with your overall retirement objectives and desired lifestyle.

If you’re approaching retirement and have questions about how Social Security fits into your financial plan, we’re here to help. Reach out to us directly at 212-355-1234 or ppeters@terranovausa.com for the New York office (Petra) or 855-248-6630 or baumgartner@terranovausa.com for the New Jersey office (Daniel). You may also contact us here to schedule a meeting and we’ll get in touch with you soon! 

About Daniel

Daniel Baumgartner is a founding partner of Terra Nova Asset Management LLC, a partner-owned investment advisory firm that manages individual portfolios for clients. Daniel has extensive experience in marketing, development of special U.S.-investment products, as well as customer acquisition and relationship management. His ultimate goal is to make a difference in his clients’ financial lives through honest investment advice. He strives to provide high-touch, personalized service and enjoys getting to know a client’s personality as it relates to their financial circumstances before crafting the right solutions. As money is a very personal subject, Daniel takes his responsibility as an advisor very seriously, forming long-term relationships with clients based on trust. 

Daniel received his degree in finance and international business from New York University. Outside of the office, he is a hobby landscape, street photographer, and has a great interest in U.S. and European history (16th-19th centuries), believing it helps him answer the question “Why is something the way it is?”

About Petra

Petra Peters is a founding partner and the Chief Executive Officer of Terra Nova Asset Management LLC, a partner-owned investment advisory firm that manages individual portfolios for clients. Petra has decades of experience in the banking industry, asset management, overseeing the administration of individual accounts, and designing and advising specialized funds tailored to the requirements of international private and institutional clients. With extensive knowledge of both Europe and the U.S., she’s able to provide advice and services beyond the typical investment advisor. Petra desires for her clients to live a financially care-free life so they can pursue their passions, and she values their trust and gratitude. Creating invaluable friendships formed over years of partnership, some clients even consider her part of their family.

Petra’s interests outside of work include classical music, history, travel, charities, motorcycling, and golf. She is also on the board of a German charity.