If you take the Voluntary Separation Plan (VSP) from Nissan, it is essential to understand how this decision impacts your Social Security benefits. Here are five key considerations.
Consider the Timing of Social Security Benefits
If you retire early under the VSP, you may need to rely on other sources of income outside of Social Security benefits. At the time of this piece, those eligible can begin taking Social Security at age 62.
But taking Social Security as soon as you’re eligible may not be the best solution for you. As an example, according to this chart from the Social Security Administration, a $1,000 benefit would be reduced to $700 for anyone taking it at age 62 and born in 1960 or later. The tradeoff of taking the benefits sooner is receiving less–to compensate for the fact that you’d be seemingly receiving benefits for longer (assuming you’d live to the same age regardless of when you take them).
Whether it’s weighing the pros and cons on your own, or working with a financial professional, you’ll need to consider the best timing to draw on your various sources of income in retirement and how Social Security fits into that picture.
Impact of a Lump Sum Payout
A big piece of a VSP from Nissan is the potential to have a large payout. Depending on how the large payout is paid, you could be creating a very large tax burden for the current tax year.
While there may be scenarios where it makes sense to take a lump sum payout, this can create unexpected tax headaches. This is one of the most immediate complications resulting from taking Nissan’s VSP. You’ll want to fully consider your options and understand the portion of the payout that will go to Uncle Sam.
Earnings Limit Considerations
There’s an additional consideration tied to Social Security for those who haven’t reached the Full Retirement Age and are receiving benefits.
If you choose to work after taking the VSP, you must be mindful of the annual earnings limit to avoid benefit reductions. According to the SSA, in 2025, they will deduct $1 from your benefit payments for every $2 in wages you earn above the annual limit.
If you’re at or above the Full Retirement Age, continuing to work won’t impact your benefit amount. So this consideration is only for those between 62 and the Full Retirement Age.
Maximizing Your Social Security Benefits
Instead of taking Social Security as soon as you turn 62, you could also choose to delay it as long as possible. In this scenario, you’re trading a longer waiting period for a larger benefit.
Delaying Social Security benefits past Full Retirement Age can increase your monthly benefit amount. The monthly benefit increases to its maximum at age 70.
For example, those born in 1960 or later hit Full Retirement Age at 67. But a person born in 1962 wouldn’t have to take Social Security at 67. They could wait for another three years after reaching Full Retirement Age until they begin receiving money.
If you have the financial ability to rely on other sources of income, waiting to take Social Security until the maximum benefit may be a beneficial strategy for long-term financial security
Health Insurance Considerations
Paying for healthcare needs in retirement is another key aspect of your VSP decision that is tied to Social Security. Health care can account for a large percentage of our spending, especially as we age.
Before Medicare eligibility at age 65, retirees must secure health insurance preferably through the Nissan retiree insurance plan, which may impact overall retirement planning. Some less preferable options for healthcare before hitting Medicare eligibility include:
- Spouse’s healthcare plan through employer
- COBRA coverage
- ACA Marketplace plan
- Private insurance
Next Steps
Social Security provides crucial financial assistance for retirees, disabled individuals, and their families. Understanding eligibility, benefit calculations, taxation rules, and how Social Security integrates with your retirement plan can help you make informed retirement decisions.
About the Author: Daren Chamblee, CFP®
A financial advisor based in Murfreesboro, Tennessee, Daren Chamblee has nearly 15 years of experience in the industry serving clients through financial and retirement planning. A CERTIFIED FINANCIAL PLANNER™, Daren specializes in working with employees of Nissan North America, and he currently has more than 200 clients who are current or retired Nissan employees, giving him unique insight into the financial and retirement challenges they face. You can schedule an initial consultation with Daren by clicking here.
Investment Advisory Services are offered through First Advisors National. Financial planning services are offered through First Family Wealth. First Family Wealth and First Advisors National are not endorsed, retained, or affiliated with Nissan.
