When most people approach retirement and take inventory of their "retirement assets" they are sure to include their IRA's, 401(k), stocks, bonds and mutual funds etc. Remarkably, however, they tend not to include what is arguably (for the majority of retirees) their largest retirement asset. That "asset" is their social security retirement benefit. It typically accounts for 30-60% of a retiree's retirement income and yet little attention is given to it's features and benefits and optimal ways to maximize the value of this critically important federally guaranteed retirement asset.
Most retirees today do not have a traditional pension plan provided by their prior employer(s). These types of pensions have typically been replaced by 401(k)'s and IRA's. But for those who do have such a pension plan they are certain to know all the details of their plan. They are generally clear on how much they will receive, when payments will begin, what happens to their benefit if they pre-decease their spouse etc..
You may not have one of these corporate pensions but you likely do qualify for a valuable pension plan that you have probably given little thought to as yet. That pension plan is called social security. This ubiquitous retirement program is rich in benefits, is guaranteed by the federal government, provides lifetime income which increases with inflation and yet most people know very little about it nor how to maximize benefits. Social security is often overlooked when detailing one's assets on a household balance sheet but it certainly shouldn't be.
One reason it tends to be excluded is that, as a guaranteed income stream that cannot otherwise be liquidated or reinvested, it doesn't have the characteristics of other retirement assets. It is, however, every bit as valuable (perhaps even more valuable) an "asset" as an IRA or 401(k).
Social security, unlike traditional retirement assets, is uniquely impacted by it's assumptions. For example, it's value can increase in a high inflation environment due to available cost of living adjustments which will permanently increase monthly benefit payments. Unlike other assets, it's lifetime value can be significantly increased if you know how to maneuver through the 2,700 rules which govern this program. In fact, knowing how to maximize benefits can add tens of thousands or even hundreds of thousands of dollars in additional lifetime benefits. Seeking out a social security specialist may be critical in order to find out just how to obtain all the benefits you are entitled to.
Assuming a typical couple enjoys a 20 year retirement, and they know how to maximize their available benefits, they can expect to receive as much as $1 million (or more!) in lifetime benefits. How is it possible then that people would exclude a million asset from their household balance sheet?
One reason may be that the characteristics of this "asset" differ significantly from other retirement assets. These differences, however, should not only be embraced but they should be leveraged. Social security benefits are uniquely capable of hedging many risks in retirement that traditional portfolios cannot. For example, you could potentially outlive your 401(k) or IRA assets but you can't outlive social security. The cost of living adjustments available with social security benefits provide a meaningful hedge against inflation. Maximizing the value of this guaranteed payment stream (through sophisticated filing strategies ) and co-ordinating a drawdown strategy of your other retirement assets with social security payments can help to ensure a healthy retirement income.
It's time to take a closer look at what may arguably be your largest and most valuable retirement "asset". It's not just a static number on a government generated statement that you scan once a year and discard. Social security is a complex retirement income program rich in features and benefits which, if maximized, can enhance your retirement income and is uniquely capable of hedging risks in retirement that your other assets cannot.
Ash Ahluwalia, NSSA, CCSCA, MBA