Balancing Social Security benefits with personal retirement savings

Balancing Social Security benefits with personal retirement savings


Setting out on the path to retirement readiness can sometimes lead to stress and confusion, especially when you throw variables like life expectancy and Social Security benefits into the mix. But beginning your journey to financial literacy is vitally important, and everyone, regardless of age, needs to understand some of the basics of Social Security. Once the concept is understood, the importance of saving in a retirement plan becomes apparent.

How does life expectancy affect Social Security benefits?

The number one concern most retirees face in retirement is making sure their money outlives them—not the other way around. The first thing, then, that should be considered is life expectancy. Social Security was originally designed to be neutral to a recipient in the amounts received, regardless of when the recipient decided to take their benefit. That basically means that someone taking Social Security early will receive a lesser amount for a longer period of time, while someone who waits to collect benefits will receive a higher benefit for a shorter period of time. In theory, the total benefits paid would equal out under a typical life expectancy, with the breakeven point typically in the range of 77 to 80 years, depending on the recipient’s status (single, married, widow, etc.).

In today’s world, with much longer life expectancies, this doesn’t necessarily work out to always be the case. A person living beyond the breakeven point can receive a much larger total benefit by delaying the start of Social Security collection than someone who claims at age 62. For a person who lives past age 85 for instance, this could be a significant sum of money.

When to begin collecting Social Security benefits

Let’s look at a real-world example. Let’s say full retirement age for two individuals is age 67, and they both are eligible to collect $2,000 per month in Social Security at that age. One decides to begin collecting early, at age 62. Since this person is claiming early, he/she would receive just $1,400 per month to offset the early collection. Our other individual decides to wait until age 70 to claim Social Security benefits, receiving a larger amount of $2,480 per month to offset the delayed collection. If the breakeven point for these two individuals is 80 years old, the person who delayed claiming benefits until age 70 would receive $1,080 more per month than the person who started collecting at age 62— for every month they live past 80 years old. If they both live until age 90, the person who claimed at age 70 would be almost $130,000 ahead of the person who collected at 62, just from Social Security benefits alone.

As we can see from this example, life expectancy can play a major role in deciding when to take Social Security. Someone in ill health or with a family history of premature death may want to consider taking Social Security at an earlier age to maximize their benefit, while those in good health may find that waiting until age 70 to collect Social Security is the best option for them.

The future is unpredictable, and although there’s no one-size-fits-all solution when it comes to retirement savings, it’s important to have a retirement strategy in place before you reach your golden years. Successfully balancing your Social Security options and retirement savings with your personal strategy is one of the best ways to put you on the path to retirement readiness.

4 tips for preparing a balanced retirement strategy

1. Take a look at Social Security benefits. 

Looking at Social Security benefits early in your career can raise awareness about the importance of joining your employer’s retirement plan. This will give you a good idea if you’re contributing in amounts significant enough to ensure retirement readiness at the end of a career. Your monthly Social Security benefit, when combined with your personal retirement savings, should supplement enough of your income to lead a comfortable lifestyle in retirement.

2. Begin saving for retirement early and make regular contributions. 

Entering and contributing to your employer’s retirement plan as early in your career as possible leads to one of the most powerful features of any retirement plan—the ability for returns to compound over many years. Begin (and continue) contributing to the plan, and let the returns compound over a period of years. This will provide the likeliest path to retirement success.

3.  Work with a trusted advisor. 

Financial advisors can help you set individual retirement goals and work with you to create a reasonable retirement plan. Careful monitoring, over a career, can help make sure you stay on track to achieve the retirement you’ve always dreamed of.

4.  Increase contributions to the plan. 

Increasing contributions on an annual basis, like when you receive a raise, will help make sure you’re on track and ready for retirement—as just a small change in contribution rate can make a big difference in your overall account balance. Gradually increasing your contribution limit will help ensure that you’re retirement ready in your 60s and beyond.

Tailoring a sufficient retirement plan balance with the right Social Security strategy can ease your financial stress and boost the chances of not outliving your money. Wondering if your retirement goals are in line with your Social Security benefits? Calculate your retirement!


Kent Wright – Due Diligence and De-accumulation Analyst – jkwright@pai.com – 800.236.7400 Ext. 3252

Kent is a subject matter expert on 401(k), retirement accounts, investments, and financial services. Kent is also a published author.