What is Social Security?
Social Security was designed to provide Americans with income after they retire. You can begin taking social security at age 62 (as of the date of this post). However you will receive less benefits than if you waited until full retirement age. Because of this it might be beneficial to some to delay taking benefits to maximize returns.
What is Full Retirement Age?
Social Security benefits are based on an index using your the average of past earnings. This indexed value is what you would receive if you waited until full retirement age. Full retirement age (“FRA”) is the age you receive your full benefits. If you take benefits before FRA you get less than your full benefits.
In addition to waiting until full retirement age to take your benefits you can further increase your returns by waiting until 70. Every year after you reach 67 you wait to take your benefits you receive a credit for delaying your benefits.
Below is a screenshot of the table from Social Security Administration’s website
FRA (or NRA in the graphic) would be the age when you receive 100% of your benefits. By waiting until 70 you can receive more than 100% of your benefits.
As of the time of this writing if you wait until 70 (and you were born on or after 1960) you receive 1.24x your normal benefits. As you can see waiting to claim benefits can result in more cash flow later in retirement.
How to decide when to claim
There are many things that go in to deciding when to take Social Security. You must weigh all the details of your situation to make the decision.
Factors that may influence your decision include financial ones such as current income and savings. If you still have earned income you may not need Social Security in which case it may pay to wait. Certain retirement accounts have distributions you are required to take. If you have money saved in a Traditional IRA that may incentives delaying your benefits as well.
Other sources of cash such as an inheritance or downsizing your home may also impact your decision. If you have alternatives you may not need to take your social security benefits right away. Don’t forget to consider spousal benefits as part of the overall strategy as well.
Why not wait for full retirement age
It’s not always beneficial to wait to claim Social Security. There are a few potential drawbacks of delaying Social Security. Obviously if you need the income you cannot afford to delay taking your benefits. Various factors such as medical expenses may require you to take benefits before you reach FRA. It would be beneficial to consider life expectancy and calculate the break-even point where waiting to take your benefits doesn’t actually result in more money for you.
Speak to a Professional
There are many complexities when decided when to take Social Security. Speaking to a registered professional can help you navigate this crucial, but tricky topic. Many professionals have powerful tools that they can use. These tools take in data such as income, savings, various retirement accounts and run simulations and make suggestions for retirement income strategies.
Finding the right time takes time
As you can hopefully tell, planning Social Security is not a task to be taken lightly. You need to consider a variety of factors, from finances to health and family history. Take the time to carefully plan your Social Security strategy, as it is a crucial aspect of financial planning that should not be underestimated.
Once again professional advice might be worth it considering the complexities and impact taking Social Security will have on your retirement.
As always before you make any decision do your own research or speak to a professional. Thank you for reading!
