If you’re about to retire, you may be wondering whether you should start claiming your hard-earned Social Security benefits now. This decision could be worth hundreds of thousands of dollars for many retirees. Why?
Because that’s the amount top earners can expect to receive more than their normal benefits should they delay them until age 70. Each year you delay your benefits past the age of 66 increases your benefit payout by 8 percent. Waiting until age 70 to start benefits results in a 32% increase in your monthly benefit for life.
But that is only one part of the equation. As with any critical financial decision, there is no perfect answer because it depends almost entirely on individual circumstances. However, there are three reasons why you might consider claiming sooner rather than later:
1.) You want to enjoy the money earlier: Retirement is often a long-awaited reward for putting in the work of earning and saving diligently in the accumulation years. It’s only natural to want to enjoy the early years of retirement the way many people imagine—traveling, teeing off with friends, or even getting some home improvement projects underway. But of course, this requires sufficient income to pull off. Sure, you have your retirement and brokerage accounts to lean on, but why take invested money out of the market when you could claim Social Security benefits to cover your expenses? Of course, we encourage you to weigh the relative merits of each choice with your advisor before deciding. Still, the potential return on your investments could very well outweigh the delayed Social Security benefit amount, making early claiming the best choice.
Additionally, suppose you were forced to leave your job early and needed money to meet your living expenses. In that case, you may have no choice but to claim benefits early – other than, perhaps, continuing to work in some capacity. A part-time job could generate sufficient income to allow you to delay your benefits.
2.) You’re in poor health or don’t expect to live to your life expectancy: So much of your strategy to maximize Social Security benefits will depend on how long you expect to live. Of course, you could die in an accident or receive a dire diagnosis next week, but those unpredictable possibilities aside, how long do you think you’ll live? You may need to consider factors like your blood pressure, cholesterol, weight, and other health markers. How long have your parents and other relatives lived? Delaying benefits may not make sense if the signs point to a shorter retirement period.
3.) You want to delay using your investment assets in a down market. If you were planning on retiring early and using your invested assets as a source of income, you could end up finding yourself in a hole that could adversely affect your future income. If you sell assets that have fallen in value, you lock in those losses permanently with no opportunity to recover them. With stock prices down, you will have to sell more of them to generate the cash flow you need, reducing your portfolio’s value further and affecting its ability to generate needed cash flow in the future.
While taking Social Security benefits early results in a 30% reduction of your benefit amount, the total amount you will receive over your lifetime would be equal to or higher than if you started them at your full retirement age (FRA). As the chart below shows, total benefits received beginning at age 62 would be higher if you don’t live past age 70 or 75, and they would be roughly equal at age 80. It’s not until after age 83 that your total benefit amount would be less.
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Total Lifetime Benefits
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Begin at age 62
$750 monthly benefit
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Begin at age 66
$1,000 Monthly benefit
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Begin at age 70
$ 1,320 Monthly benefit
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Live to 70
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$72,000
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$48,000
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0
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Live to 75
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$117,000
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$108,000
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$79,200
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Live to 80
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$162,000
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$168,000
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$158,400
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Live to 83 (life expectancy)
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$189,000
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$204,000
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$205,920
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Live to 85
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$207,000
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$228,000
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$237,600
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Live to 90
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$252,000
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288,000
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$316,800
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Key Takeaways
When you start taking your Social Security benefits is a personal decision based on your circumstances, but it’s essential to understand your options and their implications thoroughly.
You don’t have to take Social Security just because you’re retired, but there are plenty of circumstances in which doing so outweighs the potential benefit of waiting.
If you are nearing retirement or are retired already and want to know when the best time to claim your benefits is, talk to your advisor to discuss your options. Social Security is a crucial piece of the retirement puzzle and should factor into your overall retirement income plan.
