For most of us, Social Security is a big part of our Retirement Plan. We and our employers have been paying into the government program throughout our working career. Choosing when to begin receiving benefits is not a simple decision. You can elect to start receiving retirement benefits as early as age 62, or delay as long as age 70. Your claiming decision can have a huge impact on your Retirement Income.
Your Social Security retirement benefits are based on your earnings during your working career. For our example, let’s say you are entitled to a benefit of $1,000/month at your Full Retirement Age. (Currently age 66 – 67 depending on your birthdate.) Your monthly benefit will be indexed to inflation for the rest of your life.
You can choose to start receiving retirement benefits at age 62 at a reduced payment of $750/month indexed to inflation for the rest of your life.
Or, you can choose to delay the start of retirement benefits until age 70 for an enhanced payment of $1,320/month indexed to inflation for the rest of your life.
What factors can help you choose when to claim Social Security retirement benefits?
1. Do you need the income now? If you need the money for immediate needs, you can claim early and live on a reduced benefit for the rest of your life.
2. Are you in good health? If you have a shorter than average lifespan you may want to claim benefits early. If you expect to live longer than average, you may want to wait to claim since the larger payments can protect you from running out of money in old age.
3. Do you have other income sources? If you have a large nest egg of tax-deferred assets like a 401k or Traditional IRA, you might talk to your tax advisor about the tax efficiency of drawing down those accounts while waiting to claim your higher Social Security benefit. That strategy might minimize taxes and Required Minimum Distributions from those tax-deferred accounts down the road.
4. Are you concerned about future stock market investment returns? Waiting to claim Social Security benefits can convert your Nest Egg’s uncertainty of market returns into the certainty of higher Social Security payments.
5. Could you claim early, invest the payments yourself, and earn a higher, guaranteed, after-tax return? Most estimates using 3% inflation and 6% earnings growth figure you would “Breakeven” about age 84. However, future investment growth rates are unpredictable. So is inflation. So is knowing how long you will live.
Your financial choice of when to claim your Social Security retirement benefit is highly personal. The decision to delay delivers the best results when there is Unexpected Inflation, Long Longevity, or Bad Investment Returns.
For more information go to ssa.gov. Create an account and you will be able to see your Earnings Record and Benefits Estimate.
We can help you evaluate different Social Security claiming strategies based on your unique circumstances.
So, what do you think? When do you plan to start Social Security benefits? Why?