Why It's Important To Factor Social Security Into Your Estate Planning

Estate planning is a tough gig. While it's great to be the one who decides how your finances are handled when you're gone, it's also not the most fun way to spend a Saturday. With life spans increasing and the longevity industry becoming more of a powerhouse as time goes by, neglecting end-of-life planning for a few more vibrant working years may seem practical, rather than irresponsible.

Naming beneficiaries who stand to inherit, organizing payment for medical care, determining guardians for children, and even planning your own funeral are overwhelming tasks in the best of times, let alone in the most stressed of times. While pushing off the process is totally understandable, raising the stakes of major financial planning decisions might cause hardship for yourself or loved ones later.

Just like how a common 401(k) mistake can cost you a fortune, forgetting to account for Social Security when estate planning can cause you headaches. It can also cost you and your loved ones money. Get ahead of letting something essential slip through the administrative cracks by being sure to factor Social Security into your end-of-life financial plans.

Granting a trusted individual with power of attorney for one's affairs is no small matter. This can be a process as emotionally difficult as it is financially necessary. Anyone who has gone through (or is going through) the process knows it can be a sensitive, frustrating maneuver. One made all the more frustrating because the Social Security Administration (SSA) doesn't recognize power of attorney when it comes to Social Security benefits.

Instead, the SSA recognizes a representative payee; that is, an individual designated to handle a beneficiary's benefits. The administration can appoint a representative payee for a beneficiary, or the role can be applied for by the beneficiary's power of attorney. When estate planning, be sure your power of attorney also applies to be your representative payee.

The SSA doesn't require this step arbitrarily, but rather to protect beneficiaries from the misuse of their federal funds and potential abuse from their power of attorney. In effect, the SSA has stringent federal requirements for those seeking representative payee status, and doesn't have the manpower to investigate those individuals holding power of attorney, whose requirements vary from state to state.

Missing this crucial bit of paperwork in your estate planning can mean the loss of agency over monies being paid to a beneficiary otherwise unable to manage their own affairs. This could upend control of payments for medical or nursing care, for example.

Of course, optimizing Social Security in estate planning isn't limited exclusively to signing over control of benefits. It can seriously pay to consider how — and when — to collect Social Security benefits in the first place. Whether you delay the age you start collecting benefits in order to have a wider financial safety net in your own twilight years, or in order to make an inheritance for your next generation more robust, it's worth considering Social Security as part of your estate-planning strategy.

The name of the game is sustainability, and making your full income work for you for as long as possible, however robust or limited that may be. Whether or not you pay taxes on your Social Security income, considering the interplay of taxes, your own Social Security benefits, and survivor benefits (i.e., Social Security income after the loss of a spouse) can all affect the strength of your financial portfolio.

Delaying Social Security past full retirement age (66 or 67 years old, depending on the year you were born), until age 70, for example, will max out your benefit amounts when you do collect. While the amount of budgeting and understanding can seem immense, a variety of resources exist online and in person for support, and so does support from financial advisers. In the meantime, stay turned to the ever-evolving nature of Social Security, starting with three changes Social Security will see in 2025.