Personal Finance

Baby Boomers Are Facing the Toughest Social Security Decision in Decades

Kristin Hitchcock

Published: December 5, 2024 9:52 am

For most Baby Boomers, Social Security has long been a cornerstone of their retirement planning. However, the decisions surrounding Social Security are currently more complex than ever. There are tons of factors involved, like rising healthcare costs, tax implications, and uncertainty about the program’s solvency. 

Making the right decisions is important, as it can seriously impact your financial security during retirement. But what exactly are the right decisions?

24/7 Wall St. Key Points

• Planning retirement around Social Security can be complicated. There are several decisions new retirees need to make about when and how to claim.
• Luckily, there are online tools available to help you make the best decision for your retirement. 
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

1. When to Claim Benefits

Many people automatically assume that claiming benefits at 70 is best, as that provides a higher monthly benefit. However, this isn’t necessarily what we recommend. Here’s a breakdown of your potential options:

• Early Benefits: Claiming at 62 offers immediate income but locks in a reduced monthly benefit for life.
• Delayed Benefits: Waiting until full retirement age (66–67) or even 70 increases monthly payments significantly, thanks to delayed retirement credits.

You can also retire right at full retirement age, which would provide you with the full amount of benefits you’re entitled to.

There are several ways to make this decision. However, you should consider your other retirement savings, your life expectancy, and your plan for retirement. 

Tip: Use benefit calculators to model different scenarios and identify the best age to claim based on your expected lifespan and income needs.

2. Spousal and Survivor Strategies

Couples have more decisions to make. They can optimize Social Security benefits through spousal and survivor strategies:

• Spousal Benefits: The lower-earning spouse can claim up to 50% of the higher-earning spouse’s benefit. If one spouse earns very little, this can provide a financial boost. 
• Survivor Benefits: Widows and widowers can claim their spouse’s benefit after their death, allowing them to maintain some of their income. 

Tip: Timing is everything. Coordinating when each spouse claims benefits can maximize lifetime payouts for the couple.

3. Working During Retirement

Many Baby Boomers plan to work part-time during retirement, but this can affect Social Security benefits. If you claim benefits before you reach full retirement age and continue working, your benefits may be temporarily reduced, depending on the amount of money you earn. 

Plus, your Social Security benefits can also become taxable, depending on how much income in make in all. 

Tip: Evaluate how continued work impacts your benefits and tax liabilities to avoid surprises.

4. Solvency and Policy Changes

There is a huge question about whether Social Security will be around in a few decades. Currently, the Social Security Administration reports that the program would only be able to pay for 75% of promised benefits by 2035. For those retiring now, that can impact their retirement plans!

Of course, there are some proposed changes that could save the program, such as increasing payroll taxes or adjusting benefit formulas. 

Tip: Stay informed about policy developments and consider building additional savings to supplement potential benefit reductions.

5. Inflation and Healthcare Costs

Inflation and rising healthcare expenses can make saving (and even planning) for retirement difficult. Social Security benefits are adjusted annually for inflation, but this may not accurately measure what seniors are feeling on the ground. 

For instance, the annual Social Security adjustment doesn’t necessarily consider the higher healthcare expenses of seniors compared to the rest of the population. Healthcare costs also tend to rise with age. 

Tip: Factor healthcare costs into your retirement budget and explore supplemental insurance options like Medicare Advantage or Medigap. Don’t forget that healthcare expenses tend to rise in retirement. 

How to Make Better Decisions

Making informed decisions about Social Security is easier if you use all the resources available to you. For instance:

• Benefit Calculators: The Social Security Administration has a quick calculator that lets you estimate your benefits. Use this to play out a few different scenarios and find one that works best for you. 
• Financial Advisors: Professional guidance can help you balance Social Security benefits with other retirement income sources. If you have a particularly complicated retirement situation, we highly recommend working with a financial advisor. 
• Workshops and Webinars: Several financial institutions and organizations offer education resources for Social Security planning. Use these to your full advantage. 

Maximizing Your Benefits

Here are some quick tips to help you strategically plan your Social Security benefits. 

1. Assess Health and Longevity: Consider your family health history and lifestyle when deciding when to claim benefits.
2. Coordinate with Your Spouse: We highly recommend developing a plan with your spouse to maximize your household benefits. 
3. Plan for Taxes: Work with a financial advisor to minimize the impact of benefit taxation. 
4. Monitor Policy Changes: Social Security can change at any time, so it’s important to keep up with all potential changes. 
5. Diversify Your Retirement Income: Don’t rely solely on Social Security for your retirement benefits. After all, Social Security is meant to be a supplement only.