How Life Insurance Can Help Maximize Your Social Security Benefit

Feb 21, 2024 1 min read

Most people think of Social Security and life insurance as two separate aspects of planning for the future, but did you know that the two can actually work together to set you up for success come retirement time? Here’s how it works.

Social Security and Life Insurance FAQs

Before making any major changes to your investment portfolio or retirement plan, be sure to consider the various implications. Read on for answers to commonly asked questions about social security life insurance and be sure to talk to your Farm Bureau agent for additional guidance.

Does Life Insurance Affect Social Security Benefits?

If you're receiving Social Security retirement benefits and you're the beneficiary of a life insurance policy, the life insurance payout would be considered unearned income; therefore, it wouldn't impact your retirement benefit at all. You may have to report death benefit proceeds to the IRS but not to the Social Security Administration. To determine if you have to pay tax on this life insurance policy, utilize this IRS tool and contact your advisor. You would continue to receive your Social Security benefit in the same amount. 

Can I Use My Policy’s Cash Value and Still Receive Social Security?

Social Security retirement benefits typically don't factor in investment income, pensions, capital gains, or inheritances when determining the benefit amount. So even if you receive dividends from a whole life policy or take out a life insurance loan against your policy, your Social Security retirement benefit shouldn't be impacted.

How Can I Boost My Retirement Benefits?

When it comes to collecting Social Security benefits, the longer you wait to retire, the better. You can be eligible for Social Security benefits after working for as little as 10 years, and you can begin receiving benefits as early as age 62 or as late as age 70. If it makes sense for your life situation, it’s best to wait until the full retirement age to start collecting to ensure you get the maximum benefits. If you wait until you're 70 instead of 62 to collect benefits, you'll get an extra 8% a year. 

Bridging the Gap with Life Insurance

In order to retire at a younger age but still collect the maximum Social Security payout, some people may opt to cash out their life insurance policy and live off of those earnings until they hit age 70. At that point they can begin collecting Social Security benefits. Keep in mind, though, that this only works if you have a cash value life insurance policy. In most cases, the cash value portion of a life insurance policy doesn’t begin to accrue until 2–5 years have passed. Once cash value begins to build, it becomes available to you according to your policy’s guidelines and can be used to supplement your income as you wait to tap into your Social Security benefits. 

Get Guidance from the Experts

Before you purchase a life insurance policy or opt to delay retirement, it’s important to understand the big-picture implications. Speaking with a licensed insurance agent can help.

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.