When it comes to Social Security Benefits, it can be tempting to take the money and run as soon as you’re eligible—typically at age 62. But simply because you can; does it mean that you should?
Alexander K. Ognenovski II, JD*
- Health status, lifetime longevity, and retirement lifestyle are 3 variables that can play a role in your decision on when to claim your Social Security benefits.
- For each year in delaying your Full-Retirement-Age, up to age 70, you receive an 8% increase in your benefit.
- Claiming Social Security at age 62, rather than waiting until your full-retirement-age, could mean a 30% reduction in monthly benefits.
Possible Reduced Benefits When Taking Social Security Early.
If you start taking Social Security at age 62 rather than waiting until your full retirement age, you can expect up to a 30% reduction in monthly benefits with lesser reductions as you approach your full retirement age. It’s important to note that the retirement age is no longer age 65. It now ranges from 66 to 67, depending on your date of birth and your annual cost-of-living adjustment; which is based on your benefit. With this in mind, if you begin Social Security at 62 and start with reduced benefits, your cost of living adjusted benefit will be lower as well.
On the other hand, waiting to claim your Social Security benefit will generally result in a higher benefit. For every year you delay past your full retirement age, you receive an 8% increase in your benefit. That could be at least a 24% higher monthly benefit if you delay claiming until age 70. However, make sure to evaluate your decision based on how much you’ve saved for retirement; your other sources of income in retirement, and your expectations for longevity.
Spousal Social Security Benefits.
Several Social Security claiming strategies were eliminated in 2015, including the ability to file a Restricted Application for Spousal Benefits, which allowed you to claim benefits based on your spouse’s work record and then switch to claiming on your own work record at a later date. This strategy is no longer possible if you turned age 62 after December 31, 2015.
Claiming before your full-retirement-age on a spouse’s record means you would potentially lose even more than claiming on your own record—the benefit reduction for a spouse is up to 35% (while the reduction for claiming your own benefit is up to 30%). If you were to pre-decease your spouse, they would be eligible to receive your monthly amount as a survivor benefit—if it is higher than their own benefit amount. However, if you take your benefits early, say at age 62 versus waiting until age 70, your spouse’s survivor Social Security benefit could be up to 30% less for the remainder of their lifetime.
Furthermore, while you are eligible for reduced Social Security benefits at 62, you will not be eligible for Medicare until age 65; and hence will probably have to pay for private health insurance in the meantime. This can (and will) be costly in taking-up large sums of your Social Security benefit payments. For example, the average yearly cost of health insurance for individuals age 55–64 was $9,466 (including $1,300 in out-of-pocket spending in 2014). Taking Social Security early to pay for temporary health care cost locks-in a permanent Social Security reduction.
*Through close personal relationships, John G. Ullman & Associates has helped hundreds of families, businesses, charitable foundations, and trusts to build, manage, grow, and protect their wealth. Together we plan for a lifetime of financial success and security by creating highly customized financial plans that are formed through a balanced and dynamic approach to investing for long-term gains. Please feel free to email Alexander with further inquiries at firstname.lastname@example.org.