Timing and strategy can make the difference of tens of thousands of dollars that you collect in Social Security benefits. One of the biggest mistakes people make in retirement is claiming their Social Security benefits too early. Financial professionals Joe Anderson and Alan Clopine breakdown how holding off collecting your benefits for just a few years can make a big impact on your monthly check.
Joe: Let’s start with Social Security. This is such a big component of a lot of people’s overall retirement income strategy, and you could take it as early as 62, or you could take it a full retirement age, or you could wait until age 70. Now, this is of course just the basics. If you take it out your full retirement age, you will receive your full benefit. If you take it at 62, just know, however, you are collecting it early that’s great. You get a little bit of cash flow, but you’re going to receive a permanent haircut for the rest of your life. If you decide to wait until age 70, you’re going to get a bump in overall benefit. It’s an 8% delayed retirement credit. So, you have to make those choices, and I think Al, a lot of times people rush to take that income right away, and I think we understand why. Is that once you retire you lose that paycheck and so they want to supplement any type of paycheck whatsoever because we’re so afraid to touch our asset.
Alan: Well, you’re right about that Joe and really you know a lot of cases, folks don’t really want to dip into their own savings. But, when you run the numbers, it actually can work out much better. I’ll give you a little example here, just on claiming strategies, you’re benefit at full retirement age is just about $2,000 so you can take it as early as 62; but then you’re receiving $1,500 per month, or you can take it later. You can take it as late as 70, and that’s a little over $2,600 as a benefit. That’s a big, big difference in terms of payments throughout your life. And Joe, it’s just it’s our tendency to want to take that payment early, but in a lot of cases, it would pay to wait.
Joe: Yeah, but here’s what the argument is, is like “Okay well hey guys I’ve watched the show, what’s the break-even, right?” Right, we look at it completely different than that. We don’t look at Social Security as an investment; it isn’t a guaranteed income stream. That will last you the rest of your life so if you want to take it at 62 and invest it and use certain assumptions. Yes, you could probably beat the Social Security Administration, but the problem is with your assumptions is we don’t know when we’re going to die, right. So if we live a long life expectancy, in most cases delaying your overall benefit is going to help you. Also, there’s spousal benefits, and then there’s also survivor benefits that you have to take a look at. Real quickly, a spousal benefit is you’re going to take your own benefit, or if you’re married your spouses, or half your spouses, whichever is larger. So, if your benefit is $500 and your spouse is 2,000 well your benefit will jump up to a $1,000, that’s half your spouse’s if you take it at your full retirement age.