Many affluent investors, such as CRNAs, have not thoroughly contemplated how their Social Security benefits will affect their overall financial plan. In fact, countless high-income earners don’t think they will benefit from it. While the average Social Security benefit payment is about $1,300 per month, benefits are calculated using your earned income throughout your career, meaning the income can be significant, even for wealthy retirees. For 2016, the maximum benefit at full retirement age is $2,639 per month, and for those who wait until age seventy to start receiving payments, the maximum monthly payment is $3,576. This can add up to almost $43,000/year, and over the course of twenty years could exceed $858,000!
Furthermore, Social Security payments increase with cost of living adjustments, so the monthly benefit will continue to grow throughout your retirement. Even if you don’t need Social Security payments to live during retirement, the benefits can be invested or gifted to heirs. These are just a few of the reasons why it’s important for CRNAs to evaluate how their Social Security will play into their retirement income plan.
Though recent legislation has limited Social Security claiming options, it is still something important to consider. First of all, you need to consider whether it makes the most sense for you to claim early, at age sixty-two, or delay as long as possible to receive a larger payment amount. For married people, it is necessary to coordinate collecting a workers’ benefit and a spousal benefit.
Everyone's situation is unique, so there isn’t one best strategy for everyone. When evaluating your Social Security options, avoid making these errors that could result in a smaller benefit than expected.
1. Guessing Your Estimates
Until you apply for Social Security, your estimated benefits are just that — an estimate. Using an online calculator or talking with a financial advisor can help you make a more educated guess and better determine your benefit and what claiming strategy is most appropriate. To get started, visit the Social Security Administration’s website, which provides a Retirement Estimator calculator. This can give you an idea of what you can expect to receive.
When you’re within five years of retirement, meet with an advisor to calculate a more accurate estimate and determine how Social Security plays into your income plan and how much you’ll need from other income sources.
2. Claiming Early
While it’s different for every CRNA, it’s usually best to wait beyond age sixty-two before claiming. Depending on your full retirement age and how early you claim, you could reduce your benefits by as much as 30 percent. Especially if you plan on working as a freelance CRNA during retirement, consider pushing back your claiming date.
For CRNAs who have a healthy savings and retirement plan, it may make sense to wait until age 70 or close to it until claiming.
3. Working and Claiming Simultaneously
If you intend to work either part-time or as a freelance CNRA, claiming early can take a hefty bite out of your Social Security check. If a retiree is below full retirement age, Social Security will deduct $1 from his benefit payments for every $2 he earns above the annual limit of $15,720 (as of 2016). For CRNAs, part-time and freelance salaries can quickly surpass this amount.
Although the benefit reduction would end once a retiree reaches full retirement age, a CRNA could still lose a sizeable amount during those years. Unless you’re earning less than the annual limit, it makes more financial sense for CRNAs to wait and claim once they have reached full retirement age or chosen to stop working.
4. Not Estimating Medicare Premiums
Medicare premiums, for Parts B and D, are often withheld from Social Security payments, and the total amount withheld can surprise many retirees. In 2016, Part B premiums ran upwards of $389.80, depending on the person’s modified adjusted gross income on their 2014 tax return. But high salaries aren’t the only thing that will affect your premiums. Exercising stock options or selling real estate may cause an unexpected increase in the following year’s costs. If you do incur a special financial circumstance, you may be able to file an appeal noting that your high-income year was a one-time occurence.
5. Pension Deductions
Some pensions (though typically only public ones) don’t pay into Social Security, which means that, depending on your work record, certain provisions could end up reducing your benefit by up to 50 percent. If you are lucky enough to work for an employer who still offers a pension, chances are that it is private, so you won’t need to worry about this. But if you have a public pension, you should be aware of this potential hiccup.
Evaluating Your Social Security Benefits
Your Social Security benefit is a unique asset because the payments are guaranteed by the government to last throughout your lifetime and increase with inflation. Unlike some other assets, the value increases with higher than expected inflation. Because your Social Security asset behaves differently than other investments within your portfolio, the total benefit and claiming strategy should be considered when investing your other retirement resources.
Have questions about your retirement plan and how Social Security may come into play? Let us help you address your questions by calling us at 855.304.3748 or emailing [email protected].
About Jeremy Stanley
Jeremy Stanley is the founder of CRNA Financial Planning®. He has been providing advice and guidance to Certified Registered Nurse Anesthetists (CRNAs) for over two decades. As a CERTIFIED FINANCIAL PLANNER™, Jeremy has met rigorous certification and professional standards set by the CFP® Board. He is committed to adhering to the principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients. Jeremy is also the author of the book “The Wealthy CRNA,” which lays out a foundational roadmap for CRNAs to help them plan their financial future.
Jeremy Stanley is a financial professional with and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and CRNA Financial Planning® are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific financial or tax advice or recommendations for any individual.