There are many questions on the minds of pre-retirees. One of the main ones is simple: when? When is the best time to retire? When should I dip into my savings?
When should I claim Social Security?
For most of your working life, 12.4% of each paycheck has gone toward Social Security. Once you have entered retirement, you are tasked with deciding when to start claiming your social security benefit.
The answer is not a simple one, rather one that changes with your personal situation. For average income earners, about 40% of pre-retirement income comes in the form of social security benefits. But, if you earn considerably more than “average income”, social security may replace far less than 40% of your income.
Even so, it is a good idea to maximize the overall benefit you can receive.
Expert financial analysts and actuaries have their theories and I’d like to lay out the three main options you have: claiming early, at your full retirement age, or claiming late.
There are both positive and negative points to each one, but it is important to know that what is right for one person may not be right for another. You’ll want to take a close look at your financial profile including the full scope of your assets, income needs, liabilities, health, and desired livelihood to help inform your choice.
Before The Clock Strikes - Social Security at Age 62
The earliest age you can begin taking Social Security is 62, and many people do elect for this option. Depending on your financial and health situation, claiming early may be your best bet.
Theoretically, Social Security benefits are meant to pay the same amount of money over the span of your life no matter when you elect to enroll.
However, there are distinct advantages and disadvantages to claiming your benefit early. Let’s take a look.
Positive
You will receive more monthly checks over the course of your lifetime.
The money can help supplement cost of living.
You can enjoy the time to travel and experience new things while your health is still good.
If you are married and have earned less money than your spouse, claiming at 62 while your partner waits until 70 will help maximize your overall earnings as a couple.
You can keep more money in growth-oriented investments for longer.
Negative
Your monthly checks will be significantly lower.
If born 1960 or later you will receive a 30% decrease in overall benefit by claiming early.
If you are still working, not yet at full retirement age, and taking benefits you could face a large tax penalty. In 2016 that penalty was $1 for every $2 earned over $15,720.
Sound Of The Alarm - Social Security at Full Retirement Age
Waiting until your full retirement age to claim Social Security is another popular option. Full retirement age is not the same for each person. The IRS has created a table indicating that age based on the year you were born. For those both in 1960 or later, it is 67. Here are some reasons why claiming at full retirement age may be the right move for you.
Positive
You will get 100% of your earned the benefit.
You are able to be flexible in your saving and investment strategy.
You can continue working and claiming without enduring a penalty.
There is minimal risk with this option.
Negative
Health concerns may require you to claim early
If Social Security is a necessary income generator, you may not be able to wait.
Hitting Snooze - Social Security at age 70
The snooze button has quite a bad reputation, but in terms of claiming Social Security, hitting the snooze button may just be the best financial decision for your retirement lifestyle.
The latest you can wait to claim your Social Security benefit is age 70 (if you wait longer, you won’t get any additional benefit). Each year you wait to claim after your full retirement age, you will see an increase of about 8% of your benefit.
Let’s see how waiting may be the right choice for you.
Positive
Your monthly checks will be significantly higher, about 124% more.
This strategy is tax-friendly since most of the benefit will not be subject to income tax.
Minimal risk.
You will have more money to be able to fully enjoy retirement and if your health prevails still get to go on new adventures.
Negative
Health concerns may not allow you to wait.
Financial need may not allow you to wait due to heavy drawdown of existing assets for income.
Married couples may not benefit from both spouses waiting to claim.
Conclusion
As you can see, there are many factors to consider when deciding when to claim Social Security. Whether you decide to claim early at 62, wait until your full retirement age, or delay until 70, you have to stay true to you and make the most sound decision for you and your family.
We want your retirement to be a happy one and would love to talk with you about any questions you have about claiming benefits.
Together, we can help guide you in the direction you want to go.
Mark Fonville, CFP®
Mark has over 18 years of experience helping individuals and families invest and plan for retirement. He is a CERTIFIED FINANCIAL PLANNER™ and President of Covenant Wealth Advisors.
Disclosure: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.
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