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Does Social Security Maximization Really Work?

Does Social Security Maximization Really Work?

May 12, 2023

Social Security Maximization strategies can be effective for some individuals and couples, but it's important to understand the complexities and limitations of the Social Security system before implementing any specific strategy. 

The Social Security system is designed to provide a guaranteed source of retirement income for eligible individuals, but the amount of benefits you receive will depend on a number of factors, including your age, earnings history, marital status and when you start receiving benefits.

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One Social Security Maximization strategy, "claim now, claim more later," involves one spouse claiming Social Security benefits at age 62 while the other spouse delays claiming benefits until age 70. This strategy can be effective for couples where one spouse has a much higher earnings history, but it's important to consider the tradeoffs between receiving benefits earlier versus waiting for larger benefits later.

While Social Security Maximization strategies can be effective in certain situations, it's important to remember that the Social Security system is complex and there is no one-size-fits-all approach. Before making any decisions about Social Security, it's important to speak with a financial advisor who can help you understand your options and develop a strategy that is tailored to your individual needs and circumstances.

It's also important to note that recent changes to Social Security rules and regulations have limited some of the strategies that were previously available, so it's important to stay up-to-date on the latest developments.

A recent client case study

I recently met with a client who was planning to file for Social Security at age 62. His wife has already filed and had a pension as well. He was retiring, but he does have a side business. He came to me to see his options for Social Security combined with his retirement accounts.

We determined that if he delayed claiming his Social Security until age 70, he would be able to execute an annual Roth IRA conversion to move some of his taxable income into a tax-free option, while still staying in a lower tax bracket.

By age 70, he would have a significant portion of his IRA converted to a Roth. He would also activate a much larger Social Security benefit (with the tax advantages afforded to Social Security income). Then, at age 72, he would be subject to required minimum distributions but only on the smaller amount remaining in his traditional IRA, not the amount in his Roth IRA…allowing him to stay in a lower tax bracket without reducing income or his lifestyle. 

This strategy is projected to increase his spendable income, lower his lifetime taxes and leave a larger legacy to his children and grandchildren. It pays to plan! Let’s discuss your scenario to see how we can do the same for you.