Research shows that a large number of Americans (about 50 percent) file for Social Security benefits as soon as they are eligible – which means when they turn 62. While you’re entitled to do that — and there are many instances in which it makes perfect sense – delaying filing might actually be a better idea.
Let’s take some numbers. Using the United States Social Security Administration filing schedule, let’s say you file at the age of 66 (full retirement varies based on the year you were born) and are entitled to $1000 a month at the time (benefits vary based on one’s earnings record). But file early, at the age of 62, and you lose a whopping 25 percent of the monthly amount – and are now entitled to just $750 per month.
On the other hand, the longer you wait, the larger the monthly payoff you’re entitled to. If you wait until you’re 70, you’ll be receiving $1320 a month – a 76% increase in the amount you would receive if you filed at the age of 62.
Filing for Social Security early may make more sense than tapping into your savings, for example. By using the Social Security income, and delaying withdrawals from your retirement account, you’ll allow your portfolio to grow for as long as possible. On the other hand, allowing benefits to accrue by delaying payments will mean a higher monthly check, and perhaps more benefits over your lifetime.
Married couples can use several strategies to maximize their Social Security payouts. A frequently used strategy entails taking benefits based on the lower earner’s record early and delaying benefits based on the higher earner’s record until age 70 (or close to it). This allows you to maximize the higher benefit. This is important not only for current cash flow, but when one of the spouses dies, the other one is entitled to receive the higher of the two benefits. So by holding off on claiming the bigger benefit, the couple is maximizing income for the surviving spouse. A more advanced strategy allows the higher earner to receive a spousal benefit while waiting.
Figuring out when to claim Social Security is difficult for a number of reasons. Decisions include whether to claim your own or a spouse’s benefits, and whether to claim early (age 62), “on time” (full retirement age) or at age 70 (or any month in between). The more sophisticated planning combines several of these strategies to optimize benefits. Comparing alternatives is further complicated because no one knows their life expectancy in advance.
As a part of a comprehensive financial plan, we use sophisticated software to design a customized social security strategy tailored for the objectives you prioritize. Objectives may include maximizing current income, maximizing survivor income, or maximizing cumulative benefits over one’s lifetime. We can help you understand the alternatives so you make an informed, confident decision, then give you the step by step directions for making your claims. Schedule a consultation today.
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