Social Security is the main source of income for the majority of elderly Americans. For about half of seniors, Social Security represents 50% of their income. Yet, when going through the planning process for those in their 40’s and 50’s, we are quick to make assumptions of when to trigger Social Security benefits without a great deal of thought. Start it at full retirement age (FRA)? Start it early? Wait until 70 years of age? It’s all an abstract idea at that point. However, as you get closer to retirement age, it is important to give this more consideration.
Everyone’s financial situation and resources are different. Therefore, it is important to pay attention to your own facts and circumstances and not rely on the advice of well-meaning family and friends when making such important decisions.
Someone who chooses retirement or is forced into retirement without significant savings will have no choice but to start benefits as soon as they can. Unfortunately, a recent Census Bureau study suggest that roughly 1 in 4 seniors obtain more than 90% of their income from Social Security benefits. Many in this category are forced to take benefits early (before full retirement age), and therefore receive reduced benefits.
Claiming at FRA, an age that varies depending on your year of birth, pays 100% of available benefits. Again, the existence, or lack thereof, of other financial resources may dictate taking benefits at this point. What if your life expectancy is not long? What if your spouse is planning on waiting until they turn 70 to begin benefits? Even though you can increase your benefits by deferring your commencement, there may be individual reasons to begin as soon as you reach your FRA.
Benefits max out at 70. Every year from when you reach FRA until age 70, benefits increase by 8%. At that age, your benefits are 132% of what they were at FRA. If you have sufficient income and assets to reach 70 without needing Social Security benefits, assuming ‘normal’ life expectancy, it may make sense to delay.
If you are waiting until the age of 70 to take Social Security benefits, there are other financial steps to consider during those three to five years between FRA and 70.
Because everyone’s situation is different and there is some complexity of when to claim benefits, it is best to review your options in advance of your earliest deadline. If you have questions about your own situation, please contact me anytime at sdart@epwealth.com or use the form on my Advisor Bio page.
