When to Start Taking Social Security Benefits
In a recent interview, Erin Kennedy shared some surprising news: only 4% of people claim their Social Security benefits at the right time to receive the optimal amount of benefits. She and Tom O’Connell discussed how to determine the best time to take Social Security. It turns out there are many factors that go into helping you make that decision.
How the Benefits Are Calculated
The longer you wait to receive Social Security, the more benefits you will receive. Conversely, if you choose to claim Social Security at age 62 instead of age 70, that lowers your benefits by about 44%. That’s a big difference, especially considering Social Security makes up anywhere from 30 to 80% of most people’s retirement income.
Will Social Security Be Around in the Future?
People often talk about how Social Security may not be around in the future, but evidence doesn’t support this claim. It’s likely that the benefits will change and morph over time. For example, they may only pay out 75 cents for every $1 of eligibility in 10 years from now, but the program won’t disappear. If you’re under the age of 50, you should definitely focus on building other retirement income to supplement your Social Security benefits.
Factors to Consider about Timing Benefits
It sounds logical to claim benefits as late as you can to receive the maximum amount, but that may not be the right choice for you. If you need the income or don’t have a lot of other sources of retirement income, you can start receiving benefits at age 62. Also, your health status and longevity are factors to incorporate in your decision. If people in your family live long, you may want to hold out for the bigger monthly paycheck. If they don’t, receiving benefits sooner can be the better choice.
There are other factors to consider. For example, Social Security offers survivor benefits. You may also qualify for disability benefits. Finally, the cost of healthcare is a big factor. The cost of Medicare has increased the same as the cost-of-living adjustment in recent years. Do you plan to go back to work? This can also affect your decision to delay receiving benefits.
What’s the First Step to Planning for Social Security Benefits?
Before you can decide when to claim Social Security benefits, you need to figure out your cost of living. Studies have shown only 42% of people have calculated how much money they need to live on. If you work with a financial advisor, that’s the first step they‘re going to help you figure out. Without knowing what your expenses are, it’s quite impossible to determine when to receive Social Security.
Now that you have a better understanding of how the benefits are calculated and what factors may influence your decision, it’s time to look at your numbers. When you understand your living expenses, it becomes possible to calculate how much income you need and when Social Security has to be part of the mix.