Social security is an important component of retirement planning for most retirees, even affluent ones. If you have earned income each year over a long career, your projected social security retirement benefits are likely to cover a meaningful portion of your fixed expenses in retirement (though unlikely to cover all of them).
Social Security rules are complicated, and it is important to consider many factors in deciding when to claim your benefit. All of these can affect the best strategy for you:
- Marital Status
- Age
- Life Expectancy
- Total Assets Available
- Liquid Assets
- Need for Income
- Desired Standard of Living
- Planning to Continue Work
- Survivor Needs
When you should begin your Social Security benefits depends on several factors. The longer you think you might live, the more you will benefit from delaying your claim. If you have a spouse that will receive spousal benefits, it might make sense to delay your claim.
Some may need income early, while others may be more concerned about having the highest income possible later when your savings may be running low. Some may plan to work longer than others. Regardless, when you begin benefits should be looked at holistically with your complete financial picture so that you can make the best choice for your situation.
When should you start Social Security Benefits?
You are able to claim social security retirement benefits as early as age 62, but the benefits are reduced. If you were born after 1960, your Full Retirement Age is 67. If you claim at age 62, you will only receive 70% of your retirement benefit
Should you delay to age 70?
On the other hand, delaying your claim to age 70 will result in a permanent increase in your monthly benefits. Each month that you delay will increase your benefit by ¾%, so a three year delay leads to a 24% increase in monthly benefits.
A Social Security claiming strategy considers all of your individual needs and characteristics, as well as the complicated laws and rules to develop a plan that will result in the highest expected benefit for you.
We use a powerful software tool called Social Security Analyzer which considers your actual wage history, your life expectancy, your marital status, and other factors, and allows us to create comparison reports that show the implications of various strategies.
The graphic below is a sample from the reports we can generate. It shows that by delaying their claim to age 70 instead of claiming early at age 62, this sample couple could receive significantly more in lifetime benefits. As long as they live to age 83 (more and more likely these days), they will receive a higher lifetime benefit in the “delay” scenario.
This is a complicated decision and the optimal strategy may involve a mix—perhaps one spouse claims early and the other delays. Perhaps both should claim early or both should delay. With this tool, and with knowledge of your complete financial and personal profile, we can help you make the best decision. It could result in a great deal more benefit for you!
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations may vary. Therefore, this information should be relied upon when coordinated with individual professional advice.
