To claim or not to claim – that is the question. Is it better to postpone collecting your Social Security benefits until you are 66 or possibly 70, or is it better to take the money and run at age 62, the earliest possible moment it is offered?
Certainly, popular opinion seems to favor the “take the money and run” scenario. Statistics compiled by Social Security reveal that, while percentages are slowly shifting toward older claiming ages, about 45% of men and 50% of women still elect to begin receiving their benefits at age 62.
“What’s the harm in that?” you might well ask. These folks have worked hard all their lives, they’ve paid into Social Security for all their working years and they deserve to get some of that hard earned cash back in the form of a government pension.
But let’s take a closer look at what taking an early Social Security benefit really means for your bottom line as you get older. The United States government now defines “normal” retirement age as being 66 for those of us born between the years of 1943-1954. Deviate from the norm and you pay a price. Social Security benefits are about 25% lower at age 62 than they would be at age 66. That’s a big hit for the average working Joe or Jane who are hoping to be able to afford their heart medication AND an occasional night out during their golden years.
The elimination of many private company pension plans and the shaky status of some state employee pension plans will leave a lot of retirees looking elsewhere for income after they stop collecting a regular paycheck. According to a 2013 Retirement Confidence Survey conducted by the Employee Benefit Research Institute, 43% of those 55 or older said that they had saved less than $25,000 for retirement. For these folks and for others of the Boomer generation, Social Security benefits will be the surest source of income in retirement.
While there are many Social Security claiming strategies available to married, divorced and widowed people, there are lots of rules and qualifying events involved that make it difficult to cover all the possible scenarios in a short blog entry. Suffice to say that you need to do your own homework carefully or speak with an advisor who is very familiar with the ins and outs. You also need to do the math and pay attention to the short-term gain versus the long-term benefit. Here’s a link to an article that can get you started in sorting it all out.
What’s the best strategy for maximizing your Social Security pay-out as an individual? If you are enjoying good health and have a job that is even reasonably agreeable, the best thing to do is to keep working until you’re 70. That’s the magic age when the maximum Social Security benefit kicks in, and you’ll see an amount in that first benefit check that’s about 76% greater than it would have been at age 62. That’s huge, and it will likely get even better with small cost-of-living adjustments as the years pass.
Your Social Security benefit amount is based upon the highest thirty-five years of your earnings. If you have thirty-five or more years of Social Security earnings on your record, continuing to work at today’s pay rate can offset a low year of earnings from your younger days. The change in your benefit won’t be large, but every little bit helps.
If you’re set on retiring, take a close look at what would happen if you used some of your savings to tide you over so you can claim a bit later, especially if you do have some other form of pension income. Or maybe you can combine working part-time with using some savings for a few years until you reach full retirement age.
The decision to keep working depends on many factors, including how long you expect to live. Did your parents die young? Do you have a “family disease” that strikes many of your relations? Do you participate in high-risk behaviors or have unhealthy habits? All of these things play a role in longevity. Social Security even provides a calculator that shows your projected live expectancy at various ages. Obviously, your results may vary, but it’s interesting to take a look.
The truth is that none of us come with an expiration date. Death is our last big surprise. Since we don’t know what’s ahead, we need to balance our bucket list “wants” with our cruel reality “needs” as we age. Prepare for the worst, hope for the best, save for a rainy day and, if you’re healthy, postpone Social Security for as long as you can. That might be the best plan for a solvent retirement. But then again, who knows….
Blog By Holly Deni