Social Security Claiming Strategies - Ep #117

As a financial planner, one of the most common questions I'm asked is, when should I take Social Security? To help answer that, we look at a person's goals, review other sources of retirement income, and run projections in financial planning software to determine the most effective claiming strategy based on their specific situation.

And yet far too many Americans make this critical decision without a strategy.

Instead, they choose based on what friends or family did, even though those people likely have very different financial situations, goals, and needs.

That is a poor basis for a decision that can affect retirement income for nearly one-third of a person's life.

And in some cases, choosing poorly could cost as much as $200,000.

Now, if that isn't reason enough to be thoughtful about this decision, consider this.

You really only get one chance to get it right.

If you claim Social Security before full retirement age, you have only 12 months to change your mind.

And if you do, you must repay the benefits you've already received.

So let's review the basic options.

You can begin claiming Social Security at age 62 or as late as age 70 or any time in between.

The longer you wait, the higher your monthly benefit will be because you'll be receiving it for a shorter period of time.

Now, your benefit is based on your full retirement age, also known as your FRA, which is the age the government considers to be your standard retirement age.

For those born in 1960 or later, the full retirement age is 67.

Now if you claim at 62, your benefit can be up to 30% lower than it would be at age 67 for the rest of your life.

That works out to roughly a 6% reduction for each year you claim early.

Now if you wait until age 70, your benefit will be 32% higher than it would be at 67 for the rest of your life.

That's an 8% increase for each year you delay.

For example, if your full retirement benefit is $2,000 per month, that would be $24,000 per year.

Now, if you took it at 62, your benefit would be $1,400 a month, or $16,800 per year.

If you weighed until 70, it would be as much as $2,640 a month or $31,680 per year.

These amounts do not include future inflation adjustments, which could increase the benefit further over time.

Now, some people may think, if I claim at 62 instead of 70, I'll collect benefits for eight additional years.

That's true.

But eventually, the later claiming strategy catches up.