When it comes to Social Security, timing is everything. Many people don't realize the power of strategic planning when it comes to their retirement benefits. By waiting to claim Social Security, individuals can maximize their benefits and set themselves up for a more secure financial future.
According to the National Bureau of Economic Research, waiting until age 70 to start receiving Social Security benefits is the best course of action for the majority of Americans.
However, only 10% of individuals actually do this. Why is that? Well, it's tempting to claim benefits early, especially if you're eager to retire or if you have concerns about the solvency of the Social Security program.
But here's the thing: by waiting, you can significantly increase your monthly benefit amount. Social Security benefits are calculated based on your highest 35 years of earnings, so if you continue to work and earn a higher income, your benefit amount will continue to grow. Plus, by waiting, you can also take advantage of delayed retirement credits, which can increase your benefit amount by up to 8% per year.
Strategic Social Security planning is not just about waiting, though. It's also about considering your unique financial situation and goals. For example, if you have a spouse, you may want to coordinate your claiming strategies to maximize your combined benefits. And if you have other sources of retirement income, such as a pension or IRA, you'll need to consider how Social Security fits into your overall retirement plan.
The Benefits of Delaying Social Security:
Increased Monthly Benefits: For every year you delay claiming Social Security past your full retirement age, your benefits increase. This increase can significantly boost your monthly income during retirement.
Longevity Insurance: Living longer than expected can deplete retirement savings. By delaying Social Security, you ensure a higher guaranteed income later in life, when other resources might be running low.
Tax Considerations: Claiming Social Security later can positively impact your tax situation. Lower income in the early years of retirement might reduce your overall tax burden.
Strategies to Manage Finances While Delaying Social Security
Utilizing Other Retirement Savings: If you have other retirement savings like 401(k)s or IRAs, consider using these funds in the early years of retirement. This strategy allows your Social Security benefits to grow.
Working Longer: Even part-time work can help bridge the gap until you claim Social Security at a later age, reducing the need to draw down retirement savings prematurely.
Creating a Budget: Adjusting your lifestyle to live within a budget can make waiting to claim Social Security more feasible.
Common Concerns
Health Considerations: If you have health issues or a shorter life expectancy, claiming Social Security early might be more beneficial.
Market Conditions: The decision to delay should also consider the current economic and market conditions, as these can impact the value and sustainability of your other retirement assets.
Final Thoughts
While delaying Social Security can have its advantages, it's important to carefully evaluate your individual circumstances and consult with a financial planner or advisor. They can help you determine the best strategy for maximizing your Social Security benefits and ensuring a comfortable retirement.
Remember, everyone's situation is unique, and what works for one person may not work for another. By taking the time to understand your options and make informed decisions, you can set yourself up for a financially secure retirement.
Schedule a consultation with us today to discuss your Social Security planning and retirement goals. Our expert Michael Romanello is here to help you make the most of your benefits and achieve a secure financial future.
Michael G. Romanello is a registered representative of and offers Securities through Independence Capital Company , Inc. Member FINRA/SIPC. 5579 Pearl Road, Suite 100 Cleveland, OH 44129 Investment Advisory Services offered through Independence Capital Company, Inc.
Citation: January 2023 – 7 Ideas and Views Newsletter by Van Mueller​​.