Eleven million Boomers are retiring every day and the optimum age to begin claim Social Security benefits is on their minds. In a report from the Social Security Administration dated 12/31/22, 37% of men taking benefits and 42% of women receive 50% or more of their total income from social security. That makes this discussion a big deal! Social security is also vitally important to retirees because, unlike other sources of income available to them, it is money that is inflation-adjusted and that you can’t outlive. An individual can choose to start taking monthly social security payments anytime between ages 62 and 70, but there are consequences. The publication United Income in 2021 estimated that only 4% of retirees make the objectively best decision on the age to begin taking social security benefits given their unique circumstances. Many people rely on common misinformation, “…what their buddy’s friend’s neighbor did” (who knows what their particular situation was?!) or the strategy that their local social security office employee will give them (employees of Social Security are not trained on optimal approaches and are anyway not allowed to help with planning).
Full retirement age is the age at which you can claim benefits and they aren’t reduced for taking them early. If you were born between 1943 and 1954, your full retirement age was 66 and those born after 1960 need to wait until age 67 to attain their full retirement age. What happens if you are still working after your full retirement age or otherwise don’t need the income? Delaying benefits to age 70 increases your monthly amount a whopping 8% annually: a “sure-thing” return that would be difficult to duplicate in most other investments available to the average saver. What a deal! In my practice, though, and in the media, very few retirees decide to maximize their benefit by waiting until 70. According to 2021 data from Forbes, only 4% of those eligible delayed benefits to 70 and 58% of workers filed at 62. By filing at 62 in 2023, you will permanently set yourself up for receiving a 30% lower monthly check than your friends your age filing at their full retirement age of 67. You may have a million reasons why that makes more sense for you, but let’s take a deep dive into reasons it might make sense for you to wait.
Let’s pause a moment to highlight the fact that Boomers habitually underestimate how long they are going to live. Every single week, I listen to investors tell me that they are retiring early and claiming social security at age 62 because their mom, dad or Uncle Eddie died at 50. Never mind that those folks smoked, made other poor lifestyle choices or died 30 years ago before the remarkable advances in medicine. When I do financial planning with clients, I always plan on the individuals living until age 90. Boy, oh boy…do I get a lot of pushback! “I’ll never live that long!” or even “I don’t want to live that long!” are common refrains. We don’t get to make those decisions, though, and running out of money because you weren’t prepared for longevity should be front and center in your mind.
Another reason that clients tell me that they choose to claim at 62 is because they need income. My response to that? Then you need to keep working! The money you make working longer along with the quarters of higher income that you are adding to your eventual social security calculations are vital for your long-term financial well-being. If you have trouble paying bills and staying afloat at age 62 because you retired early, you are going to be in a world of hurt when you are 75, 80 or even older.
Another common reason that people give for claiming early is that they are in poor health. This may seem counter-intuitive and obvious, but stay with me. If you are married and in poor health, it should be front and center that you want to provide the best retirement benefit you can for your surviving spouse if you pre-decease her or him. A surviving spouse can immediately claim the benefit of the deceased spouse if it is higher than his or hers and this can be a real blessing over time to the survivor. Holding off to claim if you expect to leave a spouse is one of the best ways you can care for your spouse after your death.
Do you have more questions about social security or retirement planning in general? I’d love to help! Please reach out to [email protected] or call me at 563-949-4705.
Securities offered through J.W. Cole Financial, Inc. (JWC) Member RINRA/SIPC. Advisory services offered through J.W. Cole Advisory, Inc. (JWCA). Huiskamp Collins Investments, LLC and JWC/JWCA are unaffiliated entities.