Social security: 5 key questions


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Key Points

  • Factoring Social Security into your retirement income is an important step to take with your advisor
  • Elements such as your age and earning income in retirement can affect your benefits.
  • Your Ameriprise advisor provides personalized advice for a retirement income strategy that includes Social Security.

Your Ameriprise financial advisor will help you factor Social Security into your retirement income strategy with advanced planning tools. They will review how scenarios such as working longer or delaying benefit collection can help maximize the benefits for you, a spouse or family members. Below are answers to a few of the most common questions to consider as you prepare to talk with your advisor.

 

How does my advisor factor Social Security into retirement income?

Social Security income alone may not be enough for essential expenses such as food, housing and health care. As part of ongoing financial planning, your advisor will create a retirement income strategy that factors in Social Security and other sources of income: retirement savings, a pension or an annuity, for example.

If you are concerned about investment losses in the volatile market conditions related to COVID-19, there may be ways to increase your Social Security benefits. For example, if your current earnings are among the highest of your working years, working longer may increase your monthly benefit amount.

Continuing to work during a market correction can provide benefits beyond Social Security. You may not need to tap into assets while markets are lower, and it's an opportunity to keep contributing to your retirement accounts.

 

Should I delay collecting Social Security to claim higher monthly benefits?

You can take Social Security before your full retirement age, but doing so results in a lower lifetime benefit.

However, each month you delay collecting increases your eligible benefit, until you reach the maximum amount at age 70. Visit the Social Security website to calculate your full retirement age.

 

 

How does work affect my Social Security benefits?

You can work while collecting Social Security. However, your age and earnings may impact the amount of benefits you receive during that time.

  • Full retirement age or older: You receive Social Security benefits, regardless of how much you earn.
  • Younger than full retirement age: Your benefits are reduced for earnings above a variable annual threshold.

 

Some income is exempt from Social Security earnings limits:

  • Government benefits
  • Investment earnings
  • Interest
  • Pensions
  • Annuities
  • Capital gains

If you work for someone else, only your wage amount applies to earnings limits. If you’re self-employed, only your net earnings count.

Working won’t permanently reduce the Social Security benefits you receive, nor will your withheld benefits disappear. Once you reach full retirement age:

  • Your monthly benefit is recalculated higher, taking into account prior benefits detained due to earnings.
  • Extra income no longer decreases your benefits.

 

What is the financial status of the Social Security program?

If you are in or nearing retirement, Social Security solvency should not materially affect you.

The Social Security Board of Trustees forecasts that financial reserves are able to pay full benefits until 2035, decreasing to 79% of benefits after that time1. Potential changes to eligibility would address the shortfall, as revenue would continue to help fund the program. Changes to the program would likely be gradual and phased in over time — Ameriprise legislative experts regularly monitor new developments.

If you are concerned about the variability or uncertainty of Social Security retirement benefits, your advisor can help you build flexibility into your personalized retirement income plan.

 

Does Social Security allow for inflation or cost of living increases?

The Social Security Administration can enact yearly benefit increases called cost-of-living adjustments (COLA) based on inflation. The cost of living adjustment for 2020 was 1.6%.2 Since 1975, COLAs have ranged from 14.3% (1980) to 0.0% (2009, 2010, 2015).

The announcement for the 2021 COLA amount is expected October 2020. Higher government spending for the CARES Act could impact next year’s COLA amount (e.g., no increase). Your advisor can help you identify other sources of income when Social Security inflation adjustments are low.

 

Ask your advisor about your Social Security options

Your advisor will provide advice for your specific situation and can help you map an appropriate Social Security strategy to help you achieve your financial goals. It’s a good idea to talk with your advisor about a Social Security strategy five years before you plan to begin collecting benefits.

 

Summary: Actuarial Status of the Social Security Trust Funds, released April 2020. Social Security’s Long-Term Financial Outlook, 2020 Annual OASDI Trustees Report, released April 2020

Social Security Administration, “Cost-Of-Living Adjustment (COLA),” 2020, https://www.ssa.gov/oact/cola/colasummary.html.