When you think of Social Security, what comes to mind? Many think of retirement and how wonderful it will be to enjoy their golden years, while others wonder if the program will still be around by the time they retire.
For most, the thought of a fine bottle of wine is probably the furthest thing from their mind, despite the number of similarities between the two.
Like a fine wine, Social Security can get better with age.
When it comes to Social Security, it can pay to wait. Generally, retirees have three options when it comes to filing for Social Security benefits:
- Early retirement at age 62
- Full retirement age between 65 and 67
- Delayed retirement at age 70
Early retirement begins at age 62 but locks in retirees to a reduced benefit amount. Depending on the year you were born, the permanent reduction can be as much as 30% less than the benefit you would receive at your full retirement age. This can make a huge impact across the time span of your retirement.
Many retirees choose to file for Social Security at the earliest possible age, despite not needing the money at the time. That can be a costly mistake; just like opening a bottle of wine too early, recorking your Social Security benefit is not always an option.
That said, if you decided to take your benefit early and then regret it, you might be eligible for a limited one-time “do-over.” Get in touch with me if you want to explore a “do-over.”
Full retirement age depends on the year you were born but is typically between 65 and 67 years old. This is when your Social Security benefits have aged to the prescribed vintage period – cheers! – and you are eligible to receive 100% of your benefit. Full retirement age can be an excellent option for many retirees who decided to wait past early retirement age.
Last but not least, there is the delayed retirement option. Delayed retirement typically refers to filing at age 70, although anything past full retirement age is delayed.
Here’s the fun part about waiting: for every year you delay filing beyond full retirement age, your total benefit grows. The amount your benefit increases depends on your specific age, but for those born in 1943 or later, there is an 8% per year raise added to Social Security benefits, up to age 70. A retiree with a full retirement age of 67 could receive an additional 24% in Social Security benefits by delaying another three years to age 70. Keep in mind, there’s no further increase to the benefit beyond the age of 70, so there’s no reason to delay any further than age 70.
So what does this mean for you?
Just like choosing when to open a fine bottle of wine, it’s up to you to decide when to start receiving Social Security Benefits.
Deciding when to file for Social Security benefits is a personal decision; there is no one-size-fits-all approach. The goal is to achieve a harmonious balance between all your needs to optimize your total benefit.
When deciding when to file, some things to consider are:
- Financial needs
- Personal and family health history
- Additional income streams in retirement
Although it can pay to wait – there are certain circumstances where filing early is the best available option. For a retiree in poor health, waiting to file could mean leaving money on the table, despite the increased benefit down the road. Also, depending on financial needs, it may be that filing early is the only viable option. When there are no additional income streams, it doesn’t matter that waiting will give you an increased benefit – you need the money now.
Many retirees opt to wait until full or delayed retirement as long as they are in good physical health and their current financial needs are handled. By delaying and increasing their benefit, they can generate a greater lifetime payout than filing early. Many times, the decision to delay can lead to 5 or 6 figure differences over your retirement lifetime, so it really pays to get this decision correct.
Running a Social Security analysis can be a great way to determine the optimal time to file for your benefits. This will help you level the playing field and view each decision with an estimated lifetime benefit, making it easier to compare the differences and create the best outcome.
Understanding the subtle “notes” of Social Security benefits.
It’s important to know that while we’ve covered a few of the key characteristics of Social Security, there are many nuances left unexplored. Similar to a wine’s more subtle characteristics such as the body profile and finish – Social Security has some lesser-known, but essential aspects. Some of these nuances include the taxation of benefits, the impact of employment income while receiving benefits prior to full retirement age, spousal benefits, divorce issues, and survivor benefits.
Working with a Social Security Master Sommelier.
When deciding on a bottle of fine wine, it can be valuable to have a sommelier’s expertise and guidance. Deciding on when to file for your Social Security benefit is no different, which is where I come in. I would love to help you explore the various Social Security options available, with a specific look at your unique situation. In addition, I’m offering a free Social Security report that can help you figure out when, why, and how you should file for Social Security benefits.
If you’re interested in a complimentary consultation and the Social Security report, go ahead and schedule a time today!