Last month we began our two-part series on preparing for what can go wrong by looking at different ways to save for emergencies, handling unexpected illnesses, and covering our healthcare needs as we age. This month we will flip to the positive side of the street and talk about positioning ourselves to take advantage of opportunities that arise when things are going right!
I want to start this month’s blogs with some ways you can maximize your Social Security Retirement Benefit. No one likes to think about aging, much less figuring out the what, how, and when of applying for Social Security Benefits, but I want to challenge you to think about that differently. Your Social Security Retirement Benefit is there for the taking, but you can maximize or optimize what you get by thinking ahead, so you get the most out of your benefit possible.
Yes, I’m actually saying that you do have some control over what they dish out; hard to believe, huh? Here are some points to consider.
Full Retirement Age
Full retirement age (FRA) is the age at which a person may first become entitled to full or unreduced retirement benefits. For those born between 1943 and 1954, that age is 66. For those born later than that, their FRA is raised by 2 months for every year after 1954 that they were born, until it reaches age 67 for those born in 1960 or later.
How It Works
Let’s say your FRA is 66. If you start claiming benefits at age 66 and your full monthly benefit is $2,000, then you’ll get $2,000 per month. If you start claiming benefits at age 62, which is 48 months early, then your benefit will be reduced to 75% of your full monthly benefit—also called your “primary insurance amount.” In other words, you’ll get 25% less per month, and your check will be $1,500.1
That reduced benefit won’t increase once you reach age 66. Rather, you’ll continue to receive it for the rest of your life. It may go up over time due to cost-of-living adjustments (COLAs), but only slightly. You can do the math for your own situation using the Social Security Administration (SSA) Early or Late Retirement Calculator, one of a number of benefits calculators provided by the SSA that can also help you determine your FRA, the SSA’s estimate of your life expectancy for benefit calculations, rough estimates of your retirement benefits, individualized projections of your benefits based on your personal work record, and more.2, 3
If you wait until you are age 70 to start claiming benefits, then you’ll get an extra 8% per year—or, in total, 132% of your primary insurance amount ($2,640 per month using the example above) for the rest of your life. Claiming after you turn 70 doesn’t increase your benefits further, so there’s no reason to wait longer than that.4
The longer you can afford to wait after age 62 (up to 70), the larger your monthly benefit will be. Nevertheless, delaying benefits doesn’t necessarily mean you’ll come out ahead overall. Other factors should be considered, including your expected longevity and whether you (or your spouse) plan to file for spousal benefits. You should also consider the tax, investment opportunity, and health coverage implications.
Claiming Social Security can seem as complicated and overwhelming as it is critical. This chart shows some typical decision-making scenarios pre-retirees and retirees are faced with, like the one I just went through, and how they may go about making thoughtful decisions on when to claim Social Security benefits.
However, while delaying benefits means increased Social Security income later in life, your portfolio may need to bridge the gap and provide income until delayed benefits are received. The chart below shows how delaying at different stages will increase your benefit and the length of time for which you may have to tap other sources of retirement income until your Social Security kicks in.
This was just a quick overview of the possible ways to claim Social Security and how it may help you depending on your scenario. I encourage you to reach out to me with questions about your particular scenario and how Social Security fits into your total retirement planning scenario. And don’t forget to tune in next week when we will go over Medicare.
Until next time…
One last thought, I believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.
1Social Security Administration. "Starting Your Retirement Benefits Early. Accessed September 20, 2022.
2 Social Security Administration. “Cost-of-Living Adjustment.” Accessed September 20, 2022.
3 Social Security Administration. “Benefit Calculators.” Accessed September 20, 2022.
4 Social Security Administration. “Retirement Benefits: Delayed Retirement Credits.” Accessed September 20, 2022.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly.
All investing involves risk, including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.