By law, U.S. workers can’t claim Social Security payments until age 62, but there’s no reason you can’t start planning for payments, especially if you’re in your 50s and drawing closer to retirement.
Having a retirement action plan that includes Social Security in your 50s can give you a head start on your broader retirement income plan and give you a better grip on what income sources you can count on after your working years are over.
“The 50’s is a great time to begin Social Security planning, due to the opportunities to avoid government-imposed penalties, taxes, and fees,” William Stack, a financial adviser at Stack Financial Services, told NTD News. “Some of these opportunities begin to vanish by the early to mid-60’s, and never return.”
Other financial experts say that when you are in your 50s, Social Security becomes another piece of the income puzzle rather than something that can be viewed in isolation. “The biggest error many people make is that they wait until their claim date is getting closer before making any real decisions,” Chester Darling, co-managing partner at Stepping Stone Wealth, told NTD.
What specific action steps should you take when planning for Social Security in your 50s? Here’s a battle plan to get that job done.
Start tracking your Social Security earnings online
Check out ROTH accounts to save money
For career professionals who’ve been diligent savers in IRAs or 401(k)s, the mid-to-late 50s can be a good time to begin converting a large portion of those funds to a Roth account.“Sizable conversions after age 62 can be problematic, as it can increase Medicare premiums significantly when turning 65,” Stack said. “There’s a two-year look back called the 'Income-Related Monthly Adjustment Amount,' or IRMAA, that is applied to the Medicare premiums for retirees, based on their income as reported 2 years prior.”
Start planning your claim date
The decision as to when to begin Social Security should be an individual decision, based on factors such as overall health and estimated lifespan, marital status, and your income-producing abilities in your 60’s and beyond.“Sometimes people need to begin drawing at 62 due to health reasons, or if they have unexpectedly lost income for whatever reason,” Stack said. “For others, it might make sense to wait a few years to begin drawing, as your benefit will increase by 7-8% each year you wait, until age 70.”
Think about Social Security as an annuity
American career professionals in their 50s may want to start considering Social Security as a steady retirement income source.“Social Security is the best annuity you can buy,” Matt Hylland, a financial planner at Arnold and Mote Wealth Management in Cedar Rapids, Iowa, told NTD. “Social Security is adjusted for inflation each year, which helps your benefits maintain purchasing power throughout your life, and you can receive a significant increase in your benefits by delaying.”
For those reasons, Social Security is the “best protection against longevity and the risk of running out of money later in life for most Americans,” Hyland noted.
Don’t Make This Social Security Mistake
One of the biggest mistakes is to under-estimate the effects of inflation on the purchasing power of the income you will eventually receive from Social Security.“While there are COLA adjustments made to Social Security payments made each year, the inflation rate used for the COLA is most often lower than the inflation rate experienced by the retiree,” Stack noted. “Consequently, even a conservative retiree should have some portion of their assets invested to exceed the rate of inflation, to help maintain the same purchasing power and lifestyle throughout retirement.”