As with the overall process of planning for retirement income, there are certain important factors external to Social Security benefits that you need to take into account while planning when to file for benefits. In the list below I will detail some of these factors and why they are important to the process.
Important Factors When Planning Social Security Filing
Pension income. Pension income must be considered with special care when planning your Social Security filing strategy. Often, pensions will increase in value up to a certain age of commencement and then there are no increases after that age. Coordinating your pension with your Social Security benefits can enhance your overall income stream – since a pension is generally a guaranteed source of income for yourself and possibly your spouse.
In addition, since many pensions are not indexed for inflation, meaning that there are no Cost-of-Living-Adjustments (COLAs), it probably makes a great deal of sense to maximize the amount that you can receive from this source. Depending upon your needs, starting Social Security benefits earlier could provide you with the income you need in order to maximize your pension.
Personal Assets. Funds that you have saved over the years can help you to bridge the gap between your current age (if you’re stopping work) and the age that maximizes your Social Security benefits (and pension benefits, as noted above). While it may be difficult to stomach, it may work in your favor to start taking some funds from your retirement plans (IRAs, 401(k)s, and the like) or taxable investment or savings accounts.
This is the reason that you’ve set aside this money over the years – taking distributions from these accounts so that you can delay other benefits may make all the difference. The point is that delaying to increase the amount(s) of your guaranteed income streams is likely very much worth the amount you are taking from the accounts in the long run.
Earnings from working. As you likely have realized, working part time in your retirement could be a good way to maximize your income. As with all income-producing efforts, work, even part-time, can be a very valuable asset. For other types of assets to produce income, there must be a store of value existing in order for the income to flow. In Social Security benefits the store of value is your earnings history; the same goes for pension benefits. With retirement accounts, the amount of savings you’ve built up is the store of value.
Working, at any age, utilizes the store of value of your own experience, skills, and knowledge. Continuing to work produces income from that store of value, income that otherwise would go unrealized.
General health. If your health is declining and the expectation is that your life-span will be somewhat less than the average, this can influence your need to start Social Security benefits earlier rather than later. However, as we’ve discussed in the past, it is not only your own health (e.g., longevity) that is important to consider. The health of your dependent beneficiaries is just as important, if not more so, especially if your Social Security benefit is large enough for others to depend upon it after you’ve passed.
Income requirements. The amount of income that you need to get by and pay your ordinary expenses can also influence your time to file for Social Security benefits. If you just can’t make ends meet using all of your other sources of income, it might be necessary to file for your Social Security benefit before it is maximized.