Social Security is a big part of planning for retirement. Many people think they should wait until they’re 70 to start getting their benefits because they’ll get more money each month. While that’s true, waiting might not always be the best choice. In fact, it could cost you a lot of money. The new Social Security rules have changed things, and it’s important to understand how they affect you. Let’s break it down and see why you might want to start getting your benefits sooner rather than later.
1. The Basics of Social Security Benefits
Social Security benefits are based on how much you earned while you were working and when you decide to start getting them. You can start getting benefits as early as age 62, but if you do, you’ll get less money each month. Your full retirement age (FRA) is when you can get your full benefit amount. For people born in 1960 or later, the FRA is 67. If you wait until you’re 70, your benefit goes up by 8% for each year you delay, up to a maximum increase.
How to Do It:
- Understand Your FRA: Know your full retirement age and how starting benefits early or late affects your monthly check. For example, if your FRA is 67 and you start at 62, your benefit will be about 30% smaller. This means if your full benefit is $2,000, you’ll only get $1,400 each month.
- Calculate the Increase: If you delay until 70, your benefit will be about 24% larger. For example, a $2,000 benefit at FRA becomes $2,480 at age 70. This sounds great, but you have to think about how long you’ll actually get these benefits.
- Consider Your Lifespan: If you live a long life, the bigger benefit can pay off. But if you don’t live past your break-even age (around 80 for many people), you might miss out on years of benefits. Think about your health and family history to get an idea of how long you might live.
2. The Cost of Delaying
While delaying benefits can give you a bigger monthly check, it also means you’ll get fewer checks overall. This can add up to a lot of money over time.
How to Do It:
- Calculate the Total Benefits: Compare the total benefits you’d get if you started at 62 versus 70. For example, if you start at 62, you’ll get smaller checks for 8 more years than if you wait until 70. Over those 8 years, you could miss out on a lot of money. If your benefit at 62 is $1,400, you’d get $134,400 over 8 years. If you wait until 70, you’ll miss out on that money.
- Consider Your Financial Needs: If you need the money earlier, it might make sense to start benefits sooner. Delaying means forgoing income that could be used for living expenses, investments, or paying off debt. Think about your current financial situation and whether you can afford to wait.
- Factor in Inflation: Delaying benefits can help protect against inflation, but you’ll still miss out on years of potential income. The bigger benefit at 70 won’t make up for the lost income if you don’t live long enough. Inflation can also erode the value of your benefits over time, so getting them sooner can help you keep up with rising costs.
3. The Impact on Spouses
Delaying benefits can also affect your spouse’s benefits. Spouses can get benefits based on their own earnings or up to half of their partner’s benefit at FRA. However, if you delay, your spouse might get a smaller benefit.
How to Do It:
- Coordinate Benefits: If you’re married, think about how delaying your benefits will impact your spouse. If you delay until 70, your spouse might get a smaller benefit until you start getting benefits. For example, if your benefit at FRA is $2,000, your spouse could get $1,000. If you delay until 70, your spouse might only get $700 until you start.
- Maximize Survivor Benefits: If one spouse passes away, the surviving spouse gets the larger of the two benefits. Delaying benefits can increase the survivor benefit, providing more financial security. However, if you don’t live long enough, your spouse might miss out on years of benefits.
- Consult a Financial Advisor: A financial advisor can help you understand the best strategy for you and your spouse. They can run calculations to see which option maximizes your total benefits. They can also help you plan for different scenarios, like one spouse passing away earlier than expected.
4. The Role of Other Income
If you have other sources of income, such as a pension or investments, delaying Social Security might not be the best choice. The extra income can reduce the impact of starting benefits early.
How to Do It:
- Evaluate Your Income Sources: Look at all your income sources, including retirement accounts, investments, and any part-time work. If you have enough income to cover your expenses, you might be able to delay Social Security. But if you need the money now, it might be better to start benefits earlier.
- Consider Tax Implications: Other income can affect how much of your Social Security benefits are taxed. If you have significant other income, delaying benefits might not provide the tax advantages you expect. In fact, it could make your taxes higher in the long run.
- Create a Retirement Plan: Work with a financial advisor to create a comprehensive retirement plan. They can help you balance your income sources and determine the best time to start Social Security. A good plan will help you make the most of all your income sources and minimize your taxes.
5. The Break-Even Point
The break-even point is the age at which the total benefits you get by delaying equal the total benefits you would have gotten if you started earlier. This point varies based on your individual situation.
How to Do It:
- Calculate Your Break-Even Age: Use online calculators or work with a financial advisor to determine your break-even age. For many people, this age is around 80. For example, if your benefit at 62 is $1,400 and at 70 is $1,700, you’ll need to live past 80 to make up for the lost benefits.
- Consider Your Health and Lifespan: If you have health issues or a shorter life expectancy, starting benefits earlier might make more sense. You won’t live long enough to reach the break-even point. Think about your current health and family history to get an idea of how long you might live.
- Plan for Longevity: If you’re in good health and expect to live a long life, delaying benefits might be worth it. But this is a gamble, as no one can predict their exact lifespan. Even if you think you’ll live a long time, you might still miss out on years of benefits.
6. The New Social Security Fairness Act
The Social Security Fairness Act has brought changes that could impact your benefits. This act addresses issues like the Windfall Elimination Provision and the Government Pension Offset, which reduced benefits for some individuals.
How to Do It:
- Understand the Changes: Learn how the Social Security Fairness Act affects you. The act aims to correct inequities in the system and ensure that affected individuals receive their due benefits. For example, if you’re affected by the Windfall Elimination Provision, you might get more benefits now.
- Check for Retroactive Payments: If you’re affected by the act, you might be eligible for retroactive payments. The Social Security Administration is expediting these payments, so check if you qualify. You might be able to get back benefits you missed out on in the past.
- Stay Informed: Keep up with any updates or changes to the act. The Social Security Administration provides resources and information on their website. Make sure you know about any new rules that could affect your benefits.
7. The Importance of Acting Fast
Given the potential costs of delaying benefits, it’s important to act fast and make an informed decision. Waiting too long could mean missing out on significant income.
How to Do It:
- Make a Decision: Don’t delay making a decision about when to start Social Security. The sooner you decide, the sooner you can start getting benefits. Waiting too long could cost you a lot of money.
- Consult Professionals: Talk to financial advisors and tax professionals to understand the best strategy for your situation. They can provide personalized advice and help you maximize your benefits. They can also help you understand the new rules and how they affect you.
- Stay Flexible: Life circumstances can change, so stay flexible with your retirement plan. If your financial situation changes, you might need to adjust when you start getting benefits. For example, if you lose your job or have unexpected expenses, you might need to start benefits earlier.
Conclusion
Delaying Social Security benefits until age 70 can increase your monthly check, but it might not always be the best financial move. By understanding the new rules and considering your individual situation, you can make a smarter decision about when to start receiving benefits. Act fast to ensure you’re maximizing your retirement income and not leaving money on the table.
By understanding these points and taking action, you can make a smarter decision about when to start your Social Security benefits. Always consult with a financial advisor to ensure you’re making the best choice for your situation. Happy saving.
