We recently ran across this article about Social Security on the MSN website. It was reprinted from the financial site Motley Fool, and in the “Fool’s” typically irreverent style the provocative title caught our eye: “When Claiming Social Security at 62 is a Really Bad Idea.”
We share this article with you knowing that many of our readers and radio listeners have already made the decision to start benefits early. But if you haven’t, the Motley Fool article does provide some helpful food for thought on reasons why delay is almost always the preferred strategy. For those of you who pay close attention to planning your Social Security benefits, none of this article’s suggestions will come as a surprise, but others of you who are just beginning to think ahead about retirement may find this information timely indeed.
First, the Motley Fool article shares some Social Security background data we find interesting. “According to the latest monthly data release from the Social Security Administration (SSA),” the article says, “just over 42 million retired workers were receiving a benefits check from the SSA.” Out of this sizeable group, “more than 25 million of them are reliant on Social Security for at least half of their monthly income.” This is significant because most financial experts say Social Security was always meant to augment other retirement income, not to be a senior’s primary income source. In explaining this situation the Motley Fool article is blunt: “A history of poor saving habits and the wrong investment choices has left the current generation of retirees, and likely future generations, particularly reliant on Social Security.” (It’s another strong argument for sound and comprehensive retirement planning.)
With that in mind, the article advises, it’s more important than ever that those still working and looking ahead to retirement remain focused on maximizing their monthly Social Security payout. Motley Fool says that there are three factors each beneficiary can control in order to accomplish this goal:
- Your work history: it’s in your best interests to work at least 35 years because Social Security will use your 35 years of highest earnings when calculating your benefits.
- Your earnings history: because the government considers your highest-earning years, the longer you work into your 60’s the more likely you are to compensate for your early work history when you probably earned less.
- Your claiming age – and for many seniors this is the big one, says the Motley Fool article. The age at which you start benefits has a huge, lifelong impact, not just on you but very probably on your spouse if he or she outlives you.
Most of us know that, for those born between 1946 and 1954, full retirement age is 66. However, you can choose to begin taking a reduced benefit at age 62. Some do this because they feel they have to as a result of loss of employment, while others start benefits early because they are in poor health and don’t expect to live through their 70s. But for every year a beneficiary waits beyond 62 to start taking those payments, the annual payout goes up by about 8 percent until benefits max out at age 70. Wait until then and you receive the highest payment possible, and your surviving spouse (assuming you were the higher wage earner) will continue to receive that higher benefit after you pass on.
If the advantages are so clear, writes the Fool, most people wait until 70 to start benefits, right? Hardly. The Center for Retirement Research in Boston reports that only three percent of seniors wait until 70 to enroll. In contrast, a whopping 45 percent begin benefits at age 62. While we would argue that claiming early is a poor strategy for most people, the Motley Fool article calls it “an absolutely terrible idea” if you’re in one of these categories:
- Don’t start benefits early if you’re entering retirement with very little savings. These are the people, says the article, who need to keep working as long as possible because they will be relying on Social Security benefits for the rest of their lives – and a permanent reduction in those benefits will prove potentially crippling later on.
- Don’t start benefits early if you’re the higher-earning spouse. Because your benefits will grow faster than your spouse’s if you wait, it’s even more important for you to delay as long as you can. Also once you die your spouse’s survivor benefit will be based on yours, so the longer you wait the better it will be for him or her. If you really need an income boost at age 62, your lower-earning spouse can start benefits then, but it will almost always be a better idea to wait as long as you both can.
Are you facing retirement with a host of questions about Social Security, Medicare, Medicaid, VA benefits and the like? Are you in a quandary about your housing options or wondering how to involve your family in your retirement planning? Then we urge you to accept our invitation to attend a free AgingOptions LifePlanning Seminar with Rajiv Nagaich. There you’ll see how financial plans, legal strategies, housing choices and medical coverage can all be arranged so that they work together – and you’ll discover how to ensure that your family understands and will support your wishes. That way you can face retirement with confidence, security and joy. To find out more about upcoming LifePlanning Seminars from AgingOptions, click here for details – then register online for the seminar of your choice, or give us a call.
Don’t enter into your retirement years without a plan. Let AgingOptions show you the power of a LifePlan! We’ll see you at a LifePlanning Seminar soon.
(originally reported at www.msn.com)