Financial Face-off: When’s the Best Time to Apply for Social Security Retirement Benefits – Sooner or Later?


Hello and welcome to Financial Face-off, a MarketWatch column where we help you weigh your financial decisions. Our columnist will give her verdict. Tell us in the comments if you think she’s right, and please send us suggestions for future Financial Face-off columns.

Almost anyone who has had gainful employment in the United States is eligible to receive Social Security benefits when they retire. What some people may not realize is that they decide when they start getting those monthly payments. You can become eligible for Social Security retirement benefits as early as age 62, or age 60 if you are widowed or widowed. The question is: should you claim your Social Security retirement benefits sooner or later?

What’s at stake?

The longer you wait to collect your benefits, the more money you will receive, until you reach the highest possible benefit at age 70. Your benefit increases each month you wait between ages 62 and 70, by about 7% or 8% per year. .

At age 70, your benefit is about 76% higher than it would have been at age 62, said Martha Shedden, a retired civil engineer who was so passionate about the need to educate people about Social Security that she co-founded the National Association. of Registered Social Security Analysts, a group that trains people as social security advisers.

Before deciding when to start collecting, figure out the difference between what your advantage would be sooner and later, Shedden said. Seeing that number helps people understand that timing is “a very, very serious financial decision,” Shedden said.

This handy calculator will estimate your personal benefits and tell you how much you would get if you started claiming at age 62, 67 or 70. A person born in 1960 with an average annual income of $50,000 would receive $1,338 per month at age 62. ; $1,911 at full retirement age (67); or $2,370 at age 70, according to an AARP calculator. You must also create an account on the Social Security Administration website, which will give you an estimate of your benefits at different intervals.

The average Social Security payment is currently $1,660. The earlier you start, the longer you will enjoy these benefits. But you’ll receive the permanently reduced amount (plus modest cost-of-living adjustments) for the rest of your life. If you are waiting for full retirement age (which is set by the government and depends on your year of birth), you can receive the full social security benefit.

At full retirement age, you can earn additional income, for example through part-time work, and your social security benefits will not be reduced. (Before full retirement age, benefits decrease if you earn more than a certain amount of income from other sources.) At age 70, benefits are maximum.

In previous generations, people tended to start collecting Social Security at age 62 because they assumed that was what they were supposed to, Shedden said. But there has been a growing awareness in recent years of the value of waiting.

A key question to ask yourself: how long do you want to work? Some people love their job; others are eager to leave the workplace. If you continue to work while collecting Social Security, you run the risk of earning too much money, which can reduce your benefits. (However, you’ll get that money back in the form of larger monthly payments once you reach full retirement age.)

Once you have applied for Social Security benefits, you have a 12-month window during which you are allowed to change your mind and stop receiving benefits, but you will have to repay the amount you received until ‘now.

You will also need to consider your health, both physical and financial. People who don’t have enough retirement savings often have no choice but to sign up for Social Security as soon as they can. (About half of the population 65 and older gets at least half of their family income from Social Security; 25% of older households depend on it for at least 90% of their income.)

If your family history suggests you will live to be 90, you may want to try to wait if possible in order to get the maximum amount of money. But there is also a balance. If you were to start claiming Social Security at your full retirement age, you would receive the full amount of benefits owed to you. Anyone who applies before their FRA receives a permanent reduction in that amount, but can also balance those benefit checks with lower withdrawals from their retirement savings, giving those accounts room to continue to grow over time.

People should think in terms of maximum lifespan, not average lifespan, Shedden said. “We typically underestimate how long we’re going to live, and in doing so, we may have ‘longevity risk,’ which is the risk of running out of money later in life,” Shedden said.

It is also important to think about the other players in the equation. Divorced spouses, deceased spouses, current spouses, young children, and disabled adult children can all count toward your Social Security benefits. “It’s a family decision,” Shedden said.

Another problem that pops up in conversations about Social Security: Some people think they should start collecting as soon as possible because they fear the government is “running out of money.” It’s not going to happen, and that’s no reason to claim earlier, said financial advisers interviewed by MarketWatch.

Deciding when to claim Social Security can be an emotional discussion for people, as it touches on fundamental fears about the end of our lives and whether we will have enough money to take care of ourselves. But once people decide, they’re so relieved, Shedden said. This is a core decision and once made, other retirement plans can flow more smoothly.

My opinion

Wait – if you’re lucky enough to be among Americans with ample retirement savings and good health. (Some 26% of Americans who are still working have no retirement savings, according to the Federal Reserve’s latest report on the economic well-being of American households. Of those who have savings, only 36% believe their retirement savings is “on track”. )

My reasons

The huge difference between what your monthly payment will be at age 62 and at age 70 convinced me. I’d also like to think that if you plan for a long and healthy life, you’ll increase your chances of having one, but maybe that’s the optimist in me talking.

On the other hand

One argument for claiming your Social Security benefits sooner: You risk losing your chance to take advantage of the extra money if you wait too long to claim your benefits. If you have to save and save to support yourself until full benefits reach age 70, your quality of life and satisfaction could suffer, said Grant Meyer, certified financial planner and founder of GTS Financial in Bloomington, Minn.

At 62 or 65, even if your Social Security benefit would be less, the extra money could still help you take vacations, spend time with your grandkids, or quit a job you hate, Meyer said. . By the time you qualify for the full benefit, you may be less mobile and in poorer health.

“You have to understand your whole financial picture, but some people forget about quality of life and satisfaction,” Meyer said. “It’s easy to forget them because they’re not numbers that show up on a spreadsheet, but you have to think about them when you’re going through Social Security.”

Another argument for taking Social Security money earlier is that it can help people avoid spending their retirement investments on day-to-day expenses, allowing retirement savings to continue to grow, he said. Joseph Favorito, managing partner at Landmark Wealth Management in Melville, NY Favorito typically promotes social fundraising. Security earlier. But by his calculations, a 5% compound return on investments would exceed the 8% annual increase in simple interest on Social Security.

“If I take this dollar amount that I doesn’t spend because I had my social security benefits at 62 and I kept and invested them, and I live to be 95 or 100, although I might have received less from social security, the amount of money that has accrued, that has stayed invested over this period of time, far exceeds what I would have otherwise gotten from Social Security with these higher payments,” Favorito said. However, this strategy only works for people who are disciplined investors who don’t panic during periods of volatility, he said.

Let us know in the comments which option should win in this financial face-off and let us know your questions for future financial face-off columns.

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