PUBLISHED FRI, JAN 10 20209:08 AM ESTUPDATED MON, JAN 13
20201:27 PM EST
KEY
POINTS
·
Age 62 is the most popular age to claim Social Security — around
29% of men and 33% of women do so.
·
Social Security paychecks increase 8% each year a retiree waits
to claim benefits, up to age 70.
·
Drawing down financial portfolios or working a little longer
often makes more financial sense than claiming benefits earlier than
needed.
Retirees can boost their Social Security
payments substantially by avoiding one costly, yet common, mistake.
Americans can claim Social Security benefits as
early as age 62. While it may be tempting to begin receiving that monthly
income as soon as possible, retirees could leave a lot of money on the table by
doing so.
That’s because Social Security payments are
larger the later retirees claim them.
Someone who claims at age 62 would get a monthly
check that’s 30% smaller than someone claiming at “full retirement age,”
according to the Social Security Administration. Full retirement age is 67 for
those born in 1960 or later.
Retirees get a monthly paycheck that’s 8% larger
each year they wait, between ages 62 and 70. These payments are guaranteed,
inflation-protected and last as long as an individual lives.
That’s why financial experts recommend waiting
to claim Social Security as long as possible — age 70, ideally — since claiming
early essentially amounts to a penalty. Plus, they wonder where else a retiree
could get a guaranteed 8% annual investment return that adjusts with inflation.
“It pays to wait,” said Joel Eskovitz, a senior
policy advisor with the AARP Public Policy Institute. “It really is the best
game in town. You wouldn’t be able to beat that on the open market, certainly
without taking some risk.”
Consider this example, provided by the Social
Security Administration, of someone who turns 62 this year and who would
receive $1,000 per month from Social Security at full retirement age. Claiming
at age 62 would yield a $716 monthly benefit. Waiting until 70 would provide
$1,266 — a difference of $550.
Claiming early could also adversely impact a
retiree’s spouse. In many cases, when a retiree dies the surviving spouse
receives the same monthly check as the deceased. Thus, taking benefits early
would leave the surviving spouse with a smaller monthly check for life.
“When you claim, Social Security impacts you for
the remainder of your life,” Eskovitz said.
However, few people wait until 70 to claim.
Age 62 is the most popular age to claim Social
Security — around 29% of men and 33% of women do so. Only around 5% wait until
70. The average claiming age hovers between 64 and 65 for men and women.
More than 5 million Americans started collecting
Social Security benefits in 2018, receiving an average monthly benefit of
$1,461.
According to a joint survey published Thursday
by Kiplinger and Personal Capital, roughly 21% of those ages 55-64 would
consider claiming Social Security earlier than planned if the stock market fell
by at least 25%.
Financial advisors recommend avoiding a
knee-jerk reaction in this market scenario, and looking for alternative ways to
make ends meet, even if just for a year.
That means tapping other financial resources like
401(k) plans and individual retirement accounts. Retirees could draw income
from cash and bonds while allowing stocks to recover from losses.
It pays to wait. It
really is the best game in town. Joel Eskovitz Senior Policy Advisor At The
Aarp Public Policy Institute
While investors would likely “feel ill” when
thinking of a 25% market decline, a retiree’s overall portfolio probably
wouldn’t decline that much since investors generally shift away from stocks as
they age, said Michael Zmistowski, a financial planner based in Tampa, Florida.
Working longer, while an unpopular notion, is
one of the most impactful things individuals can do instead of claiming Social
Security, said Kyle Ryan, executive vice president of advisory at Personal
Capital.
Even working part time to supplement income from
one’s financial portfolio could help, Eskovitz said.
However, there are situations in which it could
make sense to claim Social Security early, such as for retirees with significant
health issues or pressing financial needs that can’t be addressed by other
means, according to Eskovitz.
Retirees who delay Social Security should still
apply for Medicare benefits within three months of their 65th birthday,
otherwise Medicare medical insurance (Part B) and prescription drug coverage
(Part D) may cost more money, according to the Social Security Administration.
No comments:
Post a Comment