By: Alex Talcott – Sept. 2017
Social Security benefits are a cornerstone of retirement income for many Americans, though I’ll respect Gen X and millennial clients who don’t wish to assume it will continue to be available — in its present or any form — once they reach their 60s or 70s. We can run the numbers in a financial plan with or without Social Security factored in. In any event, deciding when to start collecting benefits can be a puzzle, and the solution is different for everyone. You can claim Social Security as early as age 62, or delay it until your 70th birthday; the longer you wait, the larger your monthly benefit will be, generally. Retirement, spousal, and survivor benefit situations and choices matter. There are a variety of ways you can structure your Social Security claiming strategy, based on your income needs, personal savings, and retirement goals. I am indebted to a Boston University economics professor who has guest-lectured in a course I teach for his insights and examples. Consider the following three scenarios:
Starting Social Security Early
A person who will retire at age 62 is counting on Social Security to help meet income needs once retirement begins. His monthly benefit will be $1,500, 25%below what he would have received at age 66, which is his full retirement age.
Those who claim early will receive a smaller monthly benefit. If you are retired or plan to retire early, claiming Social Security before full retirement age may make sense. Social Security can help you cover living costs and prevent you from having to draw down significant sums from your personal savings. Therefore, this form of cash flow can help sustain your savings for what could be decades in retirement. However, if you keep working after you claim and your income exceeds the earnings limit, you might sacrifice some of your current Social Security benefits until you reach full retirement age.
Claiming Benefits at Full Retirement Age
A working spouse plans to claim her full retirement benefit at age 66. Claiming helps provide a cash flow cushion as she and her husband begin a slow transition into retirement. Her benefit of $2,733 per month would be 32 %higher if she waited until age 70, but she will collect a minimum of $32,796 per year in benefits beginning at age 66.
Waiting until full retirement age to claim benefits means that your monthly paycheck will be higher than if you began taking them at an earlier age. For a married couple needing an income boost, it may be wise to have the lower earning spouse (who qualifies for a lower Social Security benefit) be the one who claims benefits first. This is because if the spouse earning the higher Social Security benefit is the first to die, the surviving spouse will begin to collect that person’s higher benefit. Therefore, it may make sense to have the higher-earning spouse delay claiming until he or she qualifies for the highest possible benefit.
Collecting Benefits as Late as Possible
Starting on his or her 70th birthday, a person can begin collecting the maximum benefit. Knowing this, a wife who is the highest-earning spouse waits until turning 70 to first collect Social Security, generating income of $3,224 per month. That is 32 percent higher than the $2,450 monthly benefit she qualified for at full retirement age.
If you choose to keep working, or you rely on your savings until you claim at age 70, you will qualify to receive the maximum monthly benefit. After age 70, the maximum amount does not change, so there is no reason to delay collecting beyond your 70th birthday. Waiting to claim may make sense if you plan to continue working later in life or if you have sufficient assets to satisfy your income needs once you retire without risking your long-term financial security.
Be Mindful When Making Decisions
Determining when to claim Social Security is something that is best done in the context of your overall retirement plan. Know what other sources of income are available and how those can best be utilized in conjunction with Social Security. Discussing this matter with your financial advisor can help you make suitable choices for your circumstances.
Alex Talcott, JD, is a Financial Advisor with Ameriprise Financial Services, Inc. in Portsmouth and Bedford, New Hampshire and Middleton, Massachusetts. He specializes in fee-based financial planning and asset management strategies and has been in practice for over 10 years. To contact him: (603) 319-3108; 25 Chestnut St., Ste. 300N, Portsmouth, NH, 03801;
The illustrations above are hypothetical and are not meant to represent any specific investment or imply any guaranteed rate of return.
Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser. Ameriprise Financial Services, Inc. Member FINRA and SIPC. © 2017 Ameriprise Financial, Inc. All rights reserved.