It’s the question every soon-to-be retiree asks, studies, and debates: is there an exact best time to claim those Social Security benefits?
After all, you worked three or four decades or more to earn those monthly direct deposits. What’s more, if you’re like most people, your Social Security benefit will be a major part of your finances in retirement. In fact, according to a Vanguard study done a few years ago, Social Security accounts for half or more of retirement income for two-thirds of all retired seniors. For a third of those seniors, 90 percent or more of their income comes from Social Security. Given that degree of importance, it’s no wonder that there’s so much debate and speculation about the right claiming strategy.
With that in mind, we were intrigued as we read this recent article from Motley Fool. In it, reporter Maurie Backman takes a look at the question, “Is there a best claiming strategy for Social Security?” His simple answer: nope. Each person’s decision is personal, individual and unique.
“The Big Decision” About Starting Social Security
“You might struggle with the big decision about when to start taking your retirement benefit,” Backman writes. “That’s understandable. Choosing a Social Security filing age is one of the most difficult financial decisions you will have to make as a retiree. That’s because your choice will directly determine how much money you get out of the program each month.”
The reason it’s a complex question, Backman acknowledges, is that beneficiaries have quite a few options, and no two situations are alike. Benefits can begin at age 62 or at any point until you turn 70 (technically you can delay past that age, but there’s no benefit to waiting once you hit the big 7-0). In between, as Backman explains, there’s the full retirement age, which can also vary.
Waiting Has its Benefits – and Drawbacks
“The earliest you can claim Social Security is when you turn 62,” says Backman. “But you’re not eligible for what the program defines as your ‘full’ monthly benefit until you reach what it views as your ‘full retirement age,’ or FRA.” For anyone born in or after 1960, FRA is 67. For years the age for full benefits was 65, until the law was changed in 1983. At that point, full retirement age began to rise until it reached age 66 for those born between 1943 and 1954. People born between 1955 and 1960 saw a gradual rise to the present age of 67. Now there’s talk of raising full retirement age again.
The chief reason for waiting is that your benefit increases as you delay. “Claiming earlier [than full retirement age] means your monthly payment size will be cut by a percentage,” Backman explains. “You can also delay your Social Security claim past your FRA and boost your benefits even further in the process – by 8 percent a year until you reach 70.”
Still, deciding which age to go with is tough, the article acknowledges. “And if you’re wondering if there’s a ‘recommended’ age at which people in general ought to claim Social Security,” Backman states, “the answer is no.”
Financial Experts Struggle to Recommend a Filing Age
The size of the benefit should make the decision simple, Backman suggests, but things are more complicated than that. “You’ll often hear that it’s not a good idea to claim Social Security early,” he writes, “especially if you’re low on retirement savings. But for some people, filing early can be a smart choice, despite the reduction in monthly benefits it results in.”
The reality for beneficiaries, says the article, is that any Social Security filing age one might land on has its pros and cons. “The downside of filing at any age before FRA is a reduced benefit – proportional to how early you’re claiming – but the upside is getting your money sooner,” says Backman. “Delaying your filing past your FRA has the perk of boosting your benefits for life. But the downside is having to wait longer to get that money.”
Your health is another variable that makes a definitive recommendation impossible. “If your lifespan turns out to be lower than average,” Backman writes, “you may collect less overall from the program by waiting than you would have otherwise.”
What about simply choosing your full retirement age to start benefits, as many people do? “Filing exactly at your FRA might seem like a good compromise,” Backman states. “But even then, you might later end up bemoaning the fact that you could’ve had your money up to five years earlier on the one hand, or that you didn’t sit tight and give your benefit payments a boost on the other.”
Weigh the Pros and Cons and Make Your Best Choice
As hard as it is for some analytical folks to admit, this is one case where the absolute right answer doesn’t exist. “When it comes to claiming Social Security, you sort of can’t win,” Backman acknowledges. “You’ll always be able to find some downside to any given filing age you land on. Your best bet, therefore, is to weigh the pros and cons and determine what’s a reasonable choice for you.”
In his article, Backman lists a few factors he suggests should guide your decision. These include:
- Your level of personal savings;
- Your available income sources, including ability and desire to work part-time;
- The overall state of your health;
- Your spouse’s feelings on the matter
“There’s no perfect filing age for claiming Social Security, either broadly speaking or for an individual,” Backman concludes. “All you can do is spend some time thinking things through and reviewing your unique situation. After that, go with what seems like the most reasonable choice.”
One Noticeable Oversight, Says Rajiv
One big oversight, we noted, is that Backman makes no mention of the potential impact your claiming decision could have on the lifetime benefit your spouse could receive after you pass away. We asked Rajiv about this question of spousal benefits.
“Frankly I’m a bit surprised that this article isn’t clearer about Social Security benefits for a surviving spouse,” he said. “If your benefit is larger than the benefit your spouse has earned, he or she will normally start receiving your benefit once you die. If you claim early, you’re not only locking yourself into a lower benefit, but you’re potentially locking your spouse in, too. This can create a major problem for a surviving spouse and make the difference between having a decent retirement income and struggling month after month.”
The bottom line: make sure you get the complete picture as you wade through your Social Security claiming options. Contact us – we’re happy to assist you.
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(originally reported at www.fool.com)