When it comes to social security, there is not a single correct answer as to when it is appropriate to begin taking the benefit. For most people, the appeal of accessing the benefit as soon as possible is far too overwhelming. However, it may make good financial sense to wait a few more years before signing up to receive your benefit. For sure, deciding when to claim benefits will have a permanent impact on the amount of benefit you receive. Here’s why:
For individuals born in 1960 or later, your full retirement age is 67 years old. In other words, in order for you to receive the full benefit of social security you’ve accrued, you have to delay claiming your benefit until age 67. While you are still able to claim the benefit as early as age 62, doing so will incur an average of a 6% per year reduction in the amount of the benefit. If you claimed your benefit at age 62, five years before your full retirement age of 67 – you’d incur a permanent 30% reduction in your benefit.
Conversely, by waiting beyond your full retirement age – until age 70 you will actually see your benefit increase by as much as 8% per year on average in the form of a “delayed retirement” credit. Your benefit would increase to 124% of what your full retirement age benefit would otherwise be. Surprisingly, very few people take the time to understand the benefits and tradeoffs related to claiming Social Security at various ages.
How can you determine when the appropriate time is to begin claiming social security benefits? The answer for everyone is different but the factors to consider are similar. Variables such as retirement lifestyle, health status and family longevity are among the key considerations to factor into making this decision. Generally, the healthier you are coupled with the stronger your family’s history of longevity, the greater incentive you have to defer claiming the benefit. Alternatively, if you do have significant health issues or for other reasons do not anticipate a long retirement due to health concerns or lack of family longevity, claiming your social security benefit at an earlier age could make sense.
Typically, folks want to throw in the towel and retire as soon as possible and yet, for most people it is at this stage in life that you are at or near your peak earning capacity. While not everyone can keep working, if you are healthy, otherwise enjoy the work you do and have an opportunity to stay employed either full time or in some sort of consultant role, its worth it to consider doing so. Aside from being near peak earning capacity, you can continue to save. You may make “catch-up” contributions to a tax-deferred workplace savings plan like a 401(k) or 403(b) or a traditional or Roth IRA. Catch-up contributions allow you to set aside larger amounts of money for retirement.
A lot of factors will need to be considered when trying to decide what the best strategy will be for you claiming social security. Individuals approaching this decision should consult with a reputable financial planner who can evaluate their unique financial situation and make a recommendation that meets their needs. At Miles Brown Asset Management, we always put our client’s financial and lifestyle goals front and center, and work hard to craft a financial strategy that enables those goals, rather than working backwards from a set budget that dictates what kind of lifestyle a person can have. For more information, or to get help with retirement planning, please contact our offices today.
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