How Families--Young and Old--Should Think About Social Security

Social security

A wise person was once asked: What’s your single most valuable asset? His response was not his home, his business, or his 401(k). It was his future cash flows. Future cash flows--and specifically increasing ones--can dwarf other assets in comparison.

Do you look at Social Security the same way? Your future Social Security benefit is a series of future cash flows. How much those cash flows will be is unclear. It’s largely up to you: how much you earn, and how you utilize the Social Security system.

In this post I’d like to layout a rough framework for how you should be thinking about Social Security at certain ages of your life. I’ll do this through the lens of aiming to increase this key future cash flow.

Your future Social Security benefit is largely up to how much you earn and how you utilize the Social Security system!

Your 20’s to 40’s - The Working Years

Most of us aren’t thinking much about our Social Security benefit when we’re this age. We don’t really need to either. What we think about is continuing to increase our earning potential through higher education, promotional opportunities, and taking new job responsibilities.

Coincidentally, doing these things tends to increase your Social Security benefit! This is because the more income you make, the more income goes into the Social Security pot. While this massive pot is used to fund everyone’s Social Security benefit, it will fund your’s too, and a higher income means your future benefit can increase.

Your 50’s - Still Working...But Wondering, Too

By the time we hit our 50’s, most of us start thinking more about retirement. We daydream about having more time with friends and family, seeing the world, golfing more--all those things we probably haven’t spent enough time doing anyway.

The biggest question of most pre-retirees at this age is this: Will I have enough income to live on throughout retirement? If you haven’t been carefully saving and earning, you’re 50’s may be a time for some serious course corrections by saving more for retirement (such as in a 401(k)) and at least figuring out how much you might expect from Social Security once you retire.

The biggest question of most pre-retirees: Will I have enough income to live on throughout retirement?

Your 60’s - Thinking About When to Claim Social Security Benefits

Once we’ve hit our 60’s we’re just a couple years away from when we can actually take our Social Security benefits. They can be claimed as early as 62, which is what most families tend to do, but this results in a permanently lower benefit. Waiting until your Full Retirement Age (FRA) and even later can increase your benefit significantly.

When you claim your benefits is up to you, but without a doubt, once you hit your 60’s you should spend some time understanding what age you should file for Social Security benefits. Do you plan to keep working well into your 60’s? How is your health? Do you expect to live another 10, 20, or 30 years? Depending on how these questions are answered you may be able to substantially increase your benefit.

Your 70’s to 90’s (and Beyond) - Seeing The Benefits of Smart Social Security Decisions

By the time you’re this age, your Social Security decisions have been made and you’re (hopefully) enjoying some added benefits (either through a higher payment than you otherwise may have received, or perhaps an increased spousal benefit as well).

Ironically, it’s not until we die that we know the true value of this future cash flow (since how long we’re actually claiming benefits is a big factor). But one things for sure. Making the right decisions when claiming your benefit can make the different of hundreds of thousands of dollars.

Remember how important it is to view Social Security as a future cash flow stream that doesn’t stop until you die. It’s incredibly valuable! It has attributes that many other financial tools simply don’t have. Understanding the repercussions of financial decisions at any stage of life can make a big impact.

I hope you've enjoyed this perspective on Social Security. Many more future blog posts on Social Security to come. In the meantime, if you have a question about Social Security, let me know!