Many retirees understand that delaying Social Security benefits can result in a larger monthly payment. While that is generally true, there is an important tradeoff to consider: the longer you wait to begin receiving benefits, the fewer years you may have to collect them. Ultimately, the value of delaying benefits depends on factors such as your life expectancy, retirement income needs, tax situation, and overall financial strategy.
Because there is no one-size-fits-all answer, it is important to evaluate your options carefully and make a decision that aligns with your unique retirement goals.
Receiving Benefits Early
Some retirees believe it makes sense to begin collecting Social Security benefits as soon as they become eligible. After all, money received today can be used immediately, while future benefits depend on circumstances that may change over time.
Individuals can begin claiming Social Security benefits as early as age 62. However, claiming benefits before full retirement age results in a permanently reduced monthly benefit. Despite the reduction, some retirees choose to claim early and use the income to support their lifestyle, preserve other retirement assets, or invest the funds in hopes of generating additional growth.
For those with shorter life expectancies, immediate income needs, or concerns about market volatility, claiming benefits earlier may be an appropriate strategy.
Delaying Benefits
For retirees who can afford to wait, delaying Social Security benefits can significantly increase future monthly payments. Benefits grow each year they are delayed beyond full retirement age, up to age 70.
Once a person reaches age 70, delayed retirement credits stop accruing, meaning there is no additional benefit to waiting longer.
For individuals born in 1960 or later, claiming benefits at age 62 instead of full retirement age can reduce monthly benefits by approximately 30%. In practical terms, a retiree entitled to $1,000 per month at full retirement age would receive about $700 per month if benefits begin at age 62.¹ Conversely, delaying benefits can provide substantially higher monthly income later in retirement.
For retirees concerned about longevity, maximizing guaranteed lifetime income through delayed benefits can be an attractive option.
Important Considerations
As you prepare for retirement, several factors should influence your Social Security claiming strategy.
First, consider when you will be eligible to receive benefits and how you will fund your retirement expenses if you choose to delay claiming. Having sufficient savings, pension income, or other resources can make waiting more practical.
Another important consideration is taxation. Traditional retirement planning often assumed that individuals would stop working before claiming Social Security, resulting in lower taxable income during retirement. Today, however, many retirees continue working on a part-time or full-time basis.
As a result, employment income, Social Security benefits, and withdrawals from retirement accounts can combine to create a higher tax burden than expected. In some cases, it may make sense to rely on earned income or retirement savings first while delaying Social Security benefits to maximize future payments and potentially manage taxes more effectively.
Others may prefer to claim benefits earlier and preserve their personal savings for later years. The right strategy depends on your income sources, tax situation, health, and long-term financial objectives.
There Is No Universal Answer
When it comes to Social Security, there is no default strategy that works for everyone. Each retiree must evaluate their personal circumstances and determine the approach that best supports their retirement goals.
By taking the time to understand the available options and incorporating Social Security into a comprehensive retirement plan, retirees can make more informed decisions. Even among individuals with similar ages, incomes, and retirement dates, thoughtful planning can lead to significantly different outcomes.
Before making a decision, consider consulting with your Patriot Advisor who can help evaluate how Social Security fits into your broader financial plan.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.