Participating in the Social Security system may seem like a decision-free exercise: You pay in during your working years, and then you receive monthly payments when you retire. The fact is that you may have a fair bit of control over the amount and timing of receiving your benefits.
First, your benefits are calculated based upon the highest 35 years of your indexed earnings, so the longer you work and the more you earn, the greater your Social Security benefits. Second, you receive lower benefits if you claim your benefits earlier at younger ages, or you receive greater benefits if you claim later older ages.
Your full retirement age is anywhere from 65 to 67 depending on when you were born. You can choose to retire as early as age 62, but doing so may result in a reduction of as much as 30 percent of your benefits. Starting to receive benefits after full retirement age may result in larger benefits.
With delayed retirement credits, a person can receive his or her largest benefit by retiring at age 70. For every year that you delay taking benefits beyond your full retirement age, your benefits will grow by 8% annually. This is the equivalent of earning a guaranteed 8% annually while you wait to claim your benefits, and that’s an attractive investment return in any market environment.
However, the increased size of checks further out in the future shouldn’t blind you to the realities of your situation. You may simply need Social Security income sooner rather than later. For example, you or your spouse might have a health setback that prevents you from working until full retirement age or older. If you have a shorter-than-average personal life expectancy, you might consider claiming your benefits earlier. But if your parents and grandparents lived much longer than average, it may make sense to delay claiming your benefits as Social Security benefits offer perhaps the best and most affordable cost-of-living-adjusted lifelong annuity payments to you.
Better Social Security claiming strategies can be identified through a careful analysis of your income needs, your other sources of stable income, your investment and retirement assets, your life expectancy, your needs to provide contingent benefits for your spouse and dependents (if you have them), especially if they have special needs, and other relevant factors.
In short, the best answer to the question of when to claim your Social Security benefits depends on your personal facts and circumstances. While there are a myriad of possible claiming strategies available to you, with a little bit of analysis, you can hone in on a claiming strategy that will help you in your effort to optimize your benefits for you and your loved ones.
If you’d like help analyzing your situation and trying to optimize a strategy that may be best for you, we may be able to help. At Intelligent Capitalworks, that’s just part of what we do.