Regardless of when you decide to walk out of work for the last time, the question that lingers when you are age eligible is" When are you going to claim your Social Security benefits?”.
Deciding to retire and deciding to claim Social Security benefits are not linked decisions but are independent of each other. A large misconception is that these two resources must be utilized at the same time.
Since the inception of the Social Security system, it was just a natural step that people retired and claimed their Social Security benefits simultaneously. So much has changed since those early days and most notable is the disappearance of the Defined Benefit Pension plans that used to be the most common retirement benefit for employees. Defined Benefit Pensions (DBP) provide an income stream funded by your employer. And historically they were more common to find! So, you'd hang up your work boots, start collecting your DBP and start your Social Security at the same time setting yourself up for the golden days. With the disappearance of many Defined Benefit Pensions, today, Social Security is most retiree’s “pension plan” with their retirement savings supplemented by Social Security. This notably has shifted the burden of saving for retirement to the employee instead of the employer and has also changed the strategy. The decision to retire AND claim Social Security at the same time may or may not make sense for you. The only way to know which strategy makes sense for you is to hop both feet into the deep end and do an analysis.
As you're considering your personalized strategy here are things to keep in mind:
- Do overs are limited to 12 months. You can CHANGE your mind and decide to claim later. However, once you've hit the 12 month anniversary of your first check your decision is set.
- Most individuals become eligible to claim benefits when they turn age 62 according to a Center for Retirement Research study which found that the most popular age to claim benefits is age 62 (1). The study noted that 40% of all females and 35% of males apply for their benefits when they reach the magic age of 62.
- It's not always wise to follow the crowd. A common question we hear - is that a good idea to start early? The answer, it depends. It's important for you to know that drawing benefits at age 62 causes a reduction in your benefits that is based on your Full Retirement Age (FRA). You'll want to find what your FRA is before moving ahead. How much is the reduction? Well, an example - If you were born 1960 or later and are claiming benefits on your own record, the reduction is 30%; a spousal benefit would be reduced by 35% (2).
- Waiting until FRA makes sense on paper but not always in real life. Sure, the penalty for claiming early is significant. However, the math on the paper should not be your only consideration. Other factors that should be considered are family longevity, financial goals, and your personal health.
- So why wait until FRA instead of Living In the Moment? Social Security rewards you if you delay your claiming decision. Your FRA benefits increase by 8% (annually) for each month you delay taking your retirement benefits up to age 70. This decision to delay taking benefits can increase your FRA monthly benefit from 124% to 132% depending on year of birth 1954 – 1960 (3). These magical benefit increases are known as Delayed Retirement Credits and they can reward you greatly for doing just that, delaying.
- It's not all about you! Money from your Ex? There's a rule for that. Divorce, Death, Disability and all the above can impact the options Social Security provides for you.
Social Security is a significant tool in your retirement planning decision and it is not a simple one to make. Unfortunately, the incorrect claiming decision could cause you to leave thousands of dollars on the table and if you walk into a Social Security Administration office keep in mind that their Agents are specifically NOT allowed to provide advice.
Good news! You're in the right place. We love this stuff. We can review your options, walk you through decisions like #4 above and send you skipping to the SSA office with your claim strategy knowing that YOU made the decision that fits your life.
Schedule a time to meet by replying to this email, calling or by clicking here and booking an appointment .
If you'd like to read more check out our helpful sources below:
(1) https://www.fool.com/retirement/2020/03/08/what-most-popular-ages-claim-social-security.aspx
(2) https://www.ssa.gov/benefits/retirement/planner/agereduction.html