Picture this: you’re nearing retirement and you’re counting down the days until you can finally experience the golden years. However, a significant part of your retirement plan involves your social security benefits, and you’re not sure when to start claiming them.
Well, the good news is that you’re not alone. Choosing when to start taking social security can have a major impact on your retirement finances and it’s a decision that shouldn’t be taken lightly. While it might be tempting to tap into that income source when it becomes available at age 62, there are significant benefits to waiting.
Recent research finds all U.S. workers ages 45 to 62 would benefit from waiting until beyond age 65 to start receiving benefits.
Meanwhile, more than 90% would benefit from waiting until age 70.
But only about 10% of workers actually wait until then, according to estimates from Boston University economics professor Larry Kotlikoff, Federal Reserve Bank of Atlanta executive vice president David Altig and Opendoor Technologies research scientist Victor Yifan Ye.
Claiming before age 70 results in an estimated median household loss of $182,370 in lifetime discretionary spending for claimants ages 45 to 62, the researchers found.
“The return on being patient is huge with Social Security,” Kotlikoff said.
Increased Monthly Payments
One major benefit of waiting to claim your social security benefits is an increase in the monthly payment you receive. In general, the longer you wait to claim social security, the higher the monthly payments will be.
For instance, if you begin claiming social security benefits at age 62 (the earliest age you can claim), your benefit will be permanently reduced. However, if you delay claiming social security until age 70, you could receive up to 132% of the benefit you would’ve received at age 62. This increase can add up to significant savings over time.
Opportunity to Grow Investments
If you’re still working and earning an income, it may make sense to delay claiming social security benefits. By doing so, you have the opportunity to continue contributing to your retirement savings, and the longer you can contribute, the more your investments can grow. This growth can help you have a higher retirement income in the future, and you can use those investments to supplement your social security benefits.
Insurance Against Longevity Risk
According to TheHill.com, “Between 1900 and 2020 the average life expectancy in the United State rose by more than 30 years due, in part, to multiple public health measures.”
This means that retirement planning needs to account for those additional years; no one wants to get to age 95 and realize they’ve run out of money.
Social security benefits are guaranteed income for life, so if you live a long life, you can rest assured that you’ll receive social security payments for as long as you live. By delaying your claim to benefits, you increase the payments you will receive, giving you added financial security as you age.
It Depends on Your Unique Situation
Ultimately, deciding when to take social security depends on your unique situation. Factors such as your health, marital status, retirement goals, and financial situation should all be taken into consideration. That’s why it’s important to work with a financial planner who can evaluate your current circumstances and future needs to help you make informed decisions.
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