Rethinking Retirement

Rethinking Retirement

Why Delaying Social Security May Be Right For You Nassau is NOT connected with, recommended by, or endorsed by any governmental program, agency, or entity including the Social Security Administration.

Claiming Social Security as soon as you turn 62 might seem tempting after a full career of paying taxes. However, it may not always be the most beneficial approach.

A potential alternative strategy is to delay Social Security. The age you claim Social Security affects your benefits and each month you wait up to age 70 increases your monthly benefit.

As a retirement planning tool, taking steps to help maximize future Social Security Income can be valuable. Here are reasons why delaying your Social Security might make sense and practical ways your financial professional may recommend doing it.

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Information provided is based on current laws which are subject to change. You should refer to SSA.gov for current information.

For illustrative purposes only.

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When It May Make Sense To File Early

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You are worried about your health

You are struggling to pay everyday bills

Delaying Social Security is not for everyone. If you wait until age 70 to start, you need to live about 10 more years to break even with the larger checks versus beginning payments at age 62.1 If you’re worried about your long-term life expectancy due to health issues or family history, you may be better off starting payments earlier.

You might also be worried about budgeting during the early years of retirement without the extra income from Social Security. But before making that choice, consider these strategies for getting through that stretch.

1 “What is the Social Security break-even age?” Updated December 22, 2022,AARP, https://www.aarp.org/retirement/social-security/ questions-answers/retirement-benefit-break-even-age.html 4

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Why It May Make Sense To Delay Taking Social Security

01 Receive larger monthly payments for the rest of your life.2 The Social Security Administration (SSA) created a hypothetical example showing just how much delaying benefits can boost your payment. In their example, if someone starts Social Security at age 62, they receive $700 a month. If they wait until age 67, they receive $1,000 a month, nearly 50% more. And at age 70, when payments max out: $1,240 per month.3 The ratio stays the same for people earning more from Social Security. If someone would earn $1,400 a month at age 62, they’d receive $2,000 for waiting until 67 and $2,480 for waiting until 70.4

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Get bigger raises from Uncle Sam in the future. The SSA may increase your payment each year for inflation. In 2023, they increased payments by 8.7%, the biggest boost in 40 years.5 The larger your starting monthly payment, the more dollars you receive from each annual raise. However, it’s important to note that inflation adjustments are not guaranteed.

Possibly lower your retirement tax bill. The federal government could tax Social Security but only if your other taxable income is past certain limits.7 The higher your income, the more your Social Security is taxed. Higher taxable income in retirement can also lead to extra surcharges on Medicare Part B and D premiums.8 Now, if you’re getting more from Social Security, you could take less out of your taxable retirement accounts each year. Not only does this reduce your annual IRS bill, but it could also help you keep your income below the limits where you owe taxes on Social Security and Medicare surcharges.

03 Reduce your chances of outliving your retirement income. Your Social Security payments are guaranteed by the federal government to last your entire life. The SSA estimates that one out of three 65-year-olds will live to at least 90. And one out of seven will live until at least 95.6 There’s no guarantee your 401(k) or other retirement accounts will last all these years, but based on current laws, you can never outlive your Social Security benefit.

2. Social Security benefits are based on current law which is subject to change. You can learn more about Social Security’s future at ssa.gov/ThereForMe. 3. “When to Start Receiving Retirement Benefits,” Social Security Administration, January 2023, https://www.ssa.gov/pubs/EN-0510147.pdf 4. “How to Calculate Your Social Security Break-Even Age,” US News & World Report, Aug. 26, 2022, https://money.usnews.com/ money/retirement/social-security/articles/how-to-calculate-your-social-security-break-even-age 5. “Cost of Living Adjustment,” Social Security Administration, Access July 6, 2023, https://www.ssa.gov/oact/cola/colaseries.html 6. “When to Start Receiving Retirement Benefits,” Social Security Administration, January 2023, https://www.ssa.gov/pubs/EN-0510147.pdf 6

05 Leave higher income for your spouse.9 If you’re married and pass away first, your spouse has the option to replace their Social Security check with yours. They could do so if you had a larger monthly payment. If you earned a bigger Social Security check, it could make even more sense to delay so you create the largest possible benefit for yourself as well as your spouse, especially if they are younger than you.

7. “Income Taxes And Your Social Security Benefit” Social Security Administration,” Access, June 29, 2023, https://www.ssa.gov/ benefits/retirement/planner/taxes.html 8. “What is the income-related monthly adjusted amount (IRMAA)?” Jae W. Oh, February 17, 2023, Medicare Resources.org, https://www.medicareresources.org/medicare-eligibility-and-enrollment/what-is-the-income-related-monthly-adjusted-amountirmaa/ 9. “When to Start Receiving Retirement Benefits,” Social Security Administration, January 2023, https://www.ssa.gov/pubs/EN-0510147.pdf

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Five Strategies To Delay Taking Social Security

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Tap into other assets – If you have a 401(k), an IRA, a brokerage account, annuities, or any other savings, consider leaning on those accounts more as you wait on your Social Security payment. While it may be tough to see your account balances decrease remember to keep your long-term goals in mind. A paper from the American College of Financial Services estimates that the expected net present value of Social Security payments from delayed claiming for healthy women is around $180,000.10 Weigh that against the initial dip in your savings.

Use an annuity to bridge the gap – If you’re worried about budgeting your retirement withdrawals without Social Security, an annuity could be a steadier alternative. You can transfer part of your savings into a fixed indexed annuity contract and turn the single premium payment into guaranteed future income. You could set up an annuity to last however many years you need to max out Social Security, or you can choose one with guaranteed payments to last your entire life11

02 Keep working, even part-time – In the SSA example, the person who started at age 62 earned $700 a month, $8,400 a year from Social Security. That’s about $162 a week in income. Could you find some way to earn at least this much from work for a few more years?

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05 Build a plan with a professional – Once you lock in Social Security, it’s not a choice you can easily reverse; you can only change your mind within 12 months and have to pay everything back to the government.12 Before deciding when to start payments, meet with a financial professional to discuss whether you should delay, and your options for doing so.

Delay retirement spending like travel – While you might be eager to start retirement with lots of travel and hobbies, could you push back some expensive purchases? This could help you get by without Social Security at first. Then, you may be able to use those larger checks towards more fun spending later in life.

10. “The Value of Delayed Social Security Claiming for Higher-Earning Women”, Sophia Duffy, Michael Finke, David Blanchett,2021, SSRN, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3849653 8

11. The benefits and features of annuities vary by carrier and product. You may be required to purchase a separate guaranteed lifetime withdrawal benefit (“income”) rider for a fee. Contact an insurance producer for more information and for help determining if an annuity is right for you.

12. “Frequently Asked Questions - Can I withdraw my Social Security retirement claim and reapply later to increase my benefit amount?, https://faq.ssa.gov/en-us/Topic/article/KA-01993

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Important Disclosures The information in this publication is intended for use by the general public and is not individualized to address any specific investment objective. It is not intended as tax, investment or financial advice. Nassau does not provide tax, financial or investment advice, or act as a fiduciary in the sale or service of any product. Consult a tax advisor or financial representative about your specific circumstances.

Annuity contracts may be subject to possible loss of principal and earnings, since a surrender charge and market value adjustment may apply to withdrawals or upon surrender of the contract. Annuities are long-term insurance contracts. Annuities held within qualified plans do not provide any additional tax benefit. All or a portion of amounts withdrawn are subject to ordinary income tax, and if taken prior to age 59 1⁄2, a 10% IRS penalty may also apply.

Product features, options and availability may vary by state. Guarantees are based on the claims-paying ability of the issuing company.

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Nassau fixed and fixed indexed annuities are issued by Nassau Life and Annuity Company (Hartford, CT) except in New York where fixed annuities (17IMGA) are issued by Nassau Life Insurance Company (East Greenbush, NY). Nassau Life and Annuity Company is not authorized to conduct business in ME and NY, but that is subject to change. Nassau Life and Annuity Company and Nassau Life Insurance Company are subsidiaries of Nassau Financial Group. The insurers are separate entities and each is responsible only for its own financial condition and contractual obligations.

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