I get it; life gets busy, and there are more immediate issues to think about than Social Security — particularly if you’re years away from retirement. Still, reading through a major AARP survey gave me pause. There are so many things Americans don’t seem to understand about Social Security, and one stands out like a sore thumb.
AARP’s survey found that a majority of Americans believe they’re well informed about Social Security, yet most lack the knowledge needed to make the best decisions about when to start receiving retirement payments. Only 24% of survey respondents knew that waiting until age 70 to claim Social Security is the easiest way to maximize monthly benefits. While waiting until age 70 isn’t right for everyone, it’s important to understand how much of a difference it can make if you’re on a tight budget or concerned about outliving your money.
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If you reach age 60 with millions saved and invested for retirement, how much your annual Social Security benefits amount to probably doesn’t mean much. But if you’re counting on Social Security as part of your retirement plan, every dollar may count — and the best way to get every possible dollar is to make your first claim for Social Security at age 70. Even if you don’t want to wait until 70 or don’t feel it’s in your best interest, you deserve to know the benefits associated with doing so.
There’s no one-size-fits-all answer. For someone who’s no longer physically, mentally, or emotionally able to work, waiting until age 70 may be off the table. The same is true for a person who expects to have a shorter-than-average lifespan.
Before making a final decision regarding the best age to claim Social Security, you may want to ask yourself the following questions:
What am I doing today to prepare for retirement? Do I have income sources available to me, such as a 401(k) plan, an IRA, rental income, a pension, or part-time work?
How much money will I have to bridge the financial gap if I decide to delay?
What is my post-retirement debt likely to look like? Will I have a mortgage, auto loan, or other financial obligations?
How healthy am I? Do I have any serious health conditions that may favor claiming benefits earlier? Does it look like I’ll have the funds I need to cover healthcare costs in retirement? Do I enjoy my job, and am I physically able to continue working comfortably?
Have I factored in taxes? Up to 85% of your Social Security benefits may be taxed by the federal government, and depending on where you live, you may owe state taxes on retirement benefits as well.
And finally, ask yourself this question:
Do I understand how much I’d receive at different ages?
Use your full retirement age (FRA) as your base (for most, FRA is around 67). Let’s say you’re due to receive $2,000 per month at FRA. Claiming Social Security at 62 instead will result in a permanent benefit reduction of 30%, meaning you’d receive $1,400 per month rather than $2,000. Waiting until age 70 to make the claim would result in a monthly benefit that’s 24% higher than you’d receive at FRA, or $2,480.
Again, there is no single answer that’s right for everyone. What would be bad, though, is not understanding your options.
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I’m Alarmed That 76% of Americans Don’t Understand This One Fact About Social Security was originally published by The Motley Fool
