Melissa A. Seamon, CFP® Financial Advisor
If you’re nearing retirement, you’ve probably spent some time considering this question. Unfortunately, it’s a simple question with a complex answer, and there’s no one ‘time’ that is best for everyone. It’s an individual decision that depends largely on your personal circumstances, both past and present.
Ultimately, the choice of when you begin taking social security benefits will affect how much you receive, so you’ll want to understand the following key information to help you zero in on a timeline that best benefits your overall retirement picture.
What’s the age of full retirement?
Full Retirement Age (FRA), also known as the “normal retirement age,” is the age at which the Social Security Administration (SSA) deems an individual can receive their full social security retirement benefits upon leaving the workforce. For decades, everyone’s full retirement age was ’65,’ but the SSA amended the rules over the years so that your FRA is now dependent on the year you were born. Currently, those born in or after 1951 will reach full retirement age sometime between 65 and 67. You can check your age of full retirement using this free Social Security Administration calculator.
What happens if I take my social security benefits early?
The earlier you begin taking your benefits, the less you are eligible to receive. For each month you receive benefits before your FRA, your lifetime benefit amount is permanently reduced.
To be exact, a benefit amount is reduced by 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
For example, if you decide to retire five years early (at age 62 rather than the full retirement age of 67), then your lifetime benefits will be reduced by 30%. As an example, if your FRA benefit at age 67 is $25,000, a 30% reduction is $625 less per month for the rest of your life. That is quite a chunk of money to forfeit by retiring early. Many retirees—especially those in good health—will consider working longer and retiring later to delay benefits, or using other sources of income to cover living expenses while they allow their social security benefits to mature.
What happens if I delay taking social security benefits?
If you delay your Social Security benefit past full retirement age, your benefit will increase 0.67% per month for each month you wait. This adds up to 8% per year. Using the example above, if your FRA benefit at age 67 is $25,000, your delayed benefit at age 70 is $31,000, an additional $500 per month for the rest of your life. (This calculation excludes inflation.) If you can wait it out, your patience will be rewarded.
Of course, you will want to weigh the relative merits of each choice—claiming at FRA, early, or late. If claiming later means liquidating otherwise bountiful assets, the choice to delay may not be in your best interest. But, if you intend to continue working—even at a part-time capacity—the extra time commitment could be worth the wait.
Which Option is Right for Me?
The answer is: it depends. Admittedly, this non-answer is vague and unsatisfying, but there’s simply no one-size-fits-all solution here, and we would be remiss to try and provide one. Before taking the benefit, one should consider a host of factors, including:
- Your current and future financial standing
- Your long and short-term financial goals
- Your retirement plans
- Your health and/or the health of your partner
- Your overall life expectancy
Ultimately, the decision about when to claim should be made in the context of your overall financial plan.
What if I change my mind?
It is possible to withdraw your application for Social Security benefits if you change your mind about taking reduced payments. However, you will have to repay what you’ve already received, including any Medicare payments and taxes deducted. The caveat to this is that you can only withdraw your application once in a lifetime. You can read more about the application for withdrawal on the SSA webpage.
While Social Security hopefully won’t be your primary source of income, it can provide a nice chunk of supplemental cash for you to rely on. You’ll simply want to ensure that you are choosing the timeline that maximizes all the sources of your retirement income as tax-efficiently as possible.
If you’re still unsure which choice is right for you, the advisors at Gardey Financial Advisors can help. As part of our comprehensive planning services, we help individuals and families align Social Security benefits with their retirement plans in order to achieve the best possible outcome.
For more information about the comprehensive planning services we provide, we encourage you to take a look around our website and see if we could be a good match. Then, schedule a call with one of our advisors by calling us at 1-800-550-3880. We’d be happy to meet with you.
To better understand the nature and scope of the advisory services and business practices of Gardey Financial Advisors Inc., please review our SEC Form ADV Part 2A and ADV Part 3 (Form CRS) available via the SEC's website, www.adviserinfo.sec.gov. (Click on the link, select “Investment Advisor Firm,” and type in the firm name. Results will provide you with both Part 1, 2 and 3 of the Gardey Financial Advisors Form ADV.) Statistics from third-party sources are deemed to be accurate but have not been confirmed by Gardey Financial Advisors.
This communication is for informational purposes only and does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or is a substitute for, personalized investment advice from Gardey Financial Advisors. The opinions expressed reflect our judgment now and are subject to change without notice and may or may not be updated. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied, is made regarding future performance. Readers who are not market professionals or institutional clients of Gardey Financial Advisors should seek the advice of their financial advisor, tax, or legal advisor before making any investment decisions based on this communication. Gardey Financial Advisors does not render legal, accounting, or tax advice. Gardey Financial Advisors works closely with our client’s other professional advisors. The solutions discussed may not be suitable for you, even if your situation is like the example presented. Investors must make their own decisions based on their specific investment objectives and financial circumstances. It should not be assumed that the recommendations made in this situation will result in the mentioned outcome. The commentary does not represent any specific clients, investments, or strategies.
By selecting the links identified in this publication, you may be redirected to third-party websites, over which Gardey Financial Advisors has no control. Gardey Financial Advisors makes no warranties as to the content or accessibility of the third-party website and assumes no liability for errors or reporting inaccuracies. Gardey Financial Advisors neither approves nor endorses the statements made by the third-party on their website. Third-party website content is subject to change without notice and may or may not be updated. It is the responsibility of the viewer/reader to ensure third-party sites accessed are virus-free and Gardey Financial Advisors accepts no responsibility for any loss or damage arising in any way from the hyperlink or third-party website.