“When Social Security was introduced in 1935, it was meant to be a supplement – it was never intended to be a primary source of income,” explains Don Dirren an Arizona Financial Advisor. “Things are a little different now. Social Security planning is a vital part of achieving lifetime income sufficiency.”
View Social Security As An Annuity Says Don Dirren
“People are living so much longer than they did in 1935,” says Don Dirren. So it’s more important than ever to maximize your Social Security benefit. I like to tell my clients to think of it as an annuity for their lifetime.”
Don Dirren continues, “There is no other investment that can guarantee 8% – and it’s backed by the federal government!”
You Have to Work the Full 35 Years Advises Dan Dirren
“The Social Security Administration – or the SSA – calculates your Social Security benefit based on your lifetime earnings. They adjust those earnings and index them to take any changes to average wages into account – basically, they’re adjusting for inflation and the rise of the hourly wage. Then the SSA takes the 35 highest-earning years and uses a formula to come up with your final benefit amount,” explains Don Dirren.
So if you entered the workforce late or were unemployed for periods of time, those years will count as zeroes in your average – which can bring it down significantly warns Don Dirren.
“After the first 35 years, every year of earnings replaces a lower year – so you can drastically increase your retirement income just by working two or three extra years,” urges Don Dirren. “It’s all about bringing up the average. Unfortunately, if you took 10 years off to raise the kids, or you were unemployed for 5 years, or you went back to school – those are all years you have to make up for when you’re planning for retirement.”
Delay Your Benefit If Possible Advises Don Dirren
“If it’s possible for you to live without your Social Security benefit for a few years, do it,” says financial planner and advisor Don Dirren. 66 is the current age at which you can receive your full benefits. “But you can delay until age 70,” he explains. “And for every year you delay, you are basically guaranteed an 8% return on your investment. That’s a sight more than the 1% on an everyday savings account.”
“Of course,” Don Dirren warns, “while this advice is generally sound, it may not apply to everyone’s situation. For instance, this doesn’t account for cost of living adjustments or any medical bills or the state of your other investments. Always speak to a professional financial planner before making any major decisions about your portfolio.”