Social Security is a familiar term to most Americans, but not everyone knows how to get the most out of their Social Security benefits. Learn how Social Security contributions and withdrawals work, why you shouldn’t withdraw from your account too early, and how your Oakwell team can help you navigate this vehicle smoothly.
How Social Security contributions and withdrawals work
Your Social Security account is a United States government program providing retirement benefits and financial protection to citizens. This account is financed through a dedicated payroll tax of 12.4% of your earned income. If you have an employer, you and your employer each pay 6.2% of your wages up to a taxable maximum of $142,800. If you are self-employed, you pay the full 12.4%.
You can begin withdrawing your Social Security benefit at age 62, but your monthly benefit could be reduced by up to 30% since you are not of full retirement age. Situationally dependent, it’s usually best to wait until your full retirement age of 67 to receive 100% of your benefit. However, if you are able to delay receiving your benefit until after you reach full retirement age, your benefits will increase 8% annually until your reach age 70.
When and how much to withdraw from your Social Security account at retirement depends on many factors, such as your health, life expectancy, and decisions made on your spouse’s record. The best way to use your benefits depends on your specific situation. For example, do you have a pension plan, other retirement accounts, or other investment accounts?
Why you shouldn’t withdraw Social Security benefits early
Withdrawing Social Security benefits too early is one of the biggest and most common mistakes people make. You may feel pressured into rushing and taking money out early due to early retirement, sensationalized news about delays and scams, or other reasons. Take a deep breath: let’s talk about why it’s best to wait instead.
- Taking money out early may reduce your benefits by as much as 30%
- Withdrawing benefits while you’re still working may result in penalties
- Every year you defer from full retirement age gives you an 8% cost of living adjustment
- Withdrawing from your Social Security account instead of other accounts with lower interest rates means you’re essentially leaving money on the table
If you are in good health, waiting beyond your full retirement age gives you an excellent rate of return (8%) simply for leaving your Social Security account alone. To provide some perspective, remember that when you are in or close to retirement, it’s recommended that you reduce the amount of risk in your portfolio. In this situation, gains of about 6% are considered “good.”
How a wealth manager can help you navigate Social Security
You can file your application with the Social Security Administration up to three months before you plan to start withdrawing benefits. Having a wealth manager’s expertise on your side as you file the application, talk to the office, or make other decisions regarding your retirement can provide reassurance that you’re making the right decisions.
Your Oakwell team can leverage our experience and interpret the data to help you make decisions that best fit your financial plans. Let us help you put together a personalized strategy so you can enjoy the results of your hard work in retirement with peace of mind.
Learn more about private wealth management and investing in your future by connecting with Oakwell today. We are here to help you grow and flourish.