Wednesday, October 19, 2016

Social Security at Age 70 Maximizes Future Income

We have all been told by financial and retirement planners that the best way to maximize the size of our Social Security benefits is to wait until age 70 to begin collecting.  However, according to research completed by the Transamerica Center for Retirement Studies, only one percent of retirees who are currently receiving Social Security waited until they were 70 years old before they claimed their benefits.  The median age to claim was 62, which is also the earliest most people can claim, meaning that the vast majority of senior citizens are willing to take reduced benefits rather than wait eight years in order to receive substantially more money.

Why Don't People Wait Until Age 70 to Claim Social Security?

If people can receive more money by waiting to receive their benefits, why don't they?

1.  Most Americans cannot afford to wait. As soon as they decide to stop working, they must begin to collect their benefits because they don't have enough assets to support themselves.  The median household between the ages of 60 and 64 has approximately $202,000 saved for retirement.  At a 4 percent withdrawal rate, that is only $8,000 income a year, which is not enough income to live on.

2.  In addition, 60 percent of retirees stop working sooner than they planned ... which means they need to start taking their benefits earlier than anticipated.  Of that 60 percent, about two-thirds stop working because they lost their job; a little over one-quarter of them retired because of health problems.

3.  Some Americans have been misled to believe that Social Security will soon run out of money, so they rush into claiming their benefits as soon as possible.

4.  A few people nearing retirement believe they can successfully invest their Social Security benefits while they are still working, doing even better than the increased earnings they will receive by waiting.  While a small number may be successful, most of these people will find that their guaranteed increase in benefits is more reliable than their ability to invest the money wisely despite the ups and downs in the market.

When Should You Take Social Security Benefits Early?

Yes, there are times when the smart move could be to take your Social Security benefits as early as possible.

1.  If you have no other way to support yourself because you have lost your job in your 60's or you have developed a major health problem, then your only alternative will be to claim your Social Security ... and be thankful it is available.

2.  You may also wish to collect early if you develop a life-shortening terminal illness.  The average man at age 65 can expect to live until age 84.3; the average woman should live until age 86.6.  If your life expectancy has been significantly reduced because you are on kidney dialysis or have a cancer that has metastasized, for example, then you may have good reason to take your benefits early.

Spousal Benefits Can Complicate the Decision

Even if you fall into one of the categories that would justify taking your Social Security benefits early, there is one reason why you may decide to postpone collecting as long as possible ... the effect your decision will have on your spouse.

For example, if you could receive $3,000 a month at age 70, your spouse would also be entitled to $1,500 a month at their full retirement age of 66 or 67.  If you die after age 70, your spouse would then get their benefits bumped up to what you have been receiving.  On the other hand, if you collect in your early 60's and only receive around $2,000 a month, everything will be proportionally reduced for your spouse, as well.  If you want to be sure your spouse will have enough money to live on after you are gone, you may want to postpone collecting as long as possible.

Does It Make a Difference in Your Total Lifetime Earnings?

While your monthly benefits are higher the longer you wait, will it really make a difference to your lifetime earnings?  The Social Security Administration uses actuarial tables to estimate how much more people can receive the longer they wait.  While, of course, individual results will differ depending on their actual lifespan, the Social Security Administration say, "As a general rule, early or late retirement will give you about the same total Social Security benefits over your lifetime."

Of course, that applies to those people who live an "average" length of time!

If you are interested in learning more about Social Security, Medicare, financial planning, where to retire, common health problems or other issues related to retirement, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional articles.

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