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How Important is Social Security Planning?

A reader writes in, asking:

“Just how important is it to learn about all the ins and outs of social security? When I look at the benefit estimates on my statement, they aren’t exactly small amounts, but this doesn’t look like it’s going to be the most important financial decision I’ve made in my life. And yet people go back and forth forever (eg on bogleheads) about whether filing at 62, 66, 70, or whatever is best.”

In terms of expected spending (in today’s dollars) over the course of a retirement, the difference between the ideal Social Security filing strategy and a very bad strategy is often in the $20,000-$40,000 range for a single person. For a married couple, the difference between the ideal strategy and a very bad strategy would often be in the $50,000-$100,000 range.*

The difference between the ideal strategy and a fairly similar strategy is much smaller. For instance if filing at 70 is ideal for you, filing at 69 and 6 months is likely to have a very similar result — a few thousand dollar difference over the course of your retirement.

So even if we’re comparing a good strategy to a very bad strategy, no, it’s not even close to the most important financial decision you’ll ever make. The career you pick, the city/cities you choose to live in, the home(s) you buy or don’t buy, the job(s) you take, whether you get married/divorced/have kids — all of those things will have a larger impact on your finances over your lifetime than your Social Security claiming decision(s).

But, for most people, you can learn most of what you need to know about Social Security from just a handful of hours of reading (in addition to my book Social Security Made Simple, I can also enthusiastically recommend Andy Landis’s Social Security: The Inside Story or Jim Blankenship’s Social Security Owner’s Manual). And if a few hours of self-education can provide a mid-five-figure expected return, those are some well-spent hours.

A key point here is that if you are not a financial planner (i.e., you are not trying to become an expert in all of the situations your clients might face), you only need to learn about the parts that apply to you. You can (probably) ignore most of the complexity. For example:

  • If you don’t have minor children or adult disabled children, you can ignore everything about child benefits and the family maximum.
  • If you don’t have a pension from non-covered employment, you can ignore everything about the windfall elimination provision and government pension offset.
  • If you have never married (or if you were married less than 10 years prior to a divorce), you can ignore everything about spousal/survivor benefits.
  • If you are married and you and your spouse were both born after 1/1/1954, you can ignore everything about restricted applications.

Most unmarried people and married couples have either one or zero complicating factors. A basic cookie-cutter-type plan works reasonably well for most people.

Social Security planning is primarily about avoiding a particularly bad strategy, and that mostly means:

  • Don’t miss a restricted application if you have the chance.
  • Get within a year or so of your ideal filing age. (For example if age 70 is the mathematically ideal age for your circumstances, don’t file at 62 or 63. But don’t worry too much about the difference between 69 and 70.)

*The differences are often greater when we also account for tax planning. Also, delaying has a risk-reduction effect that isn’t reflected in these numerical differences.

Want to Learn More about Social Security? Pick Up a Copy of My Book:

Social Security cover Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less
Topics Covered in the Book:
  • How retirement benefits, spousal benefits, and widow(er) benefits are calculated,
  • How to decide the best age to claim your benefit,
  • How Social Security benefits are taxed and how that affects tax planning,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"An excellent review of various facts and decision-making components associated with the Social Security benefits. The book provides a lot of very useful information within small space."
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