Deciding when to claim Social Security retirement benefits is probably one of the most important financial decisions you will make in your lifetime.
The stakes are high. If you claim too early, you’re signing on to receive reduced benefit checks for life.
But if you get the timing right, and draw down your retirement money and Social Security benefits in the correct order and at the right time, you could make your money last up to seven years longer.
Because Social Security has lots of claiming rules, that often means working with your CPA or Financial Planner, or both, to craft the right strategy for your situation.
If you start receiving checks when you first become eligible for retirement benefits — age 62 — you will receive reduced benefits. But if you wait until your full retirement age – typically age 66 or 67, depending on the year in which you were born — you will receive 100% of the benefits you’re entitled to based on your work record. If you hold out even further, until age 70, you will get a boost of about 8% per year for each year you wait from your full retirement age.
You can work and get Social Security retirement or survivors benefits at the same time. But, if you’re younger than full retirement age, and earn more than certain amounts, your benefits will be reduced. The amount that your benefits are reduced, however, isn’t truly lost. Your benefit will increase at your full retirement age to account for benefits withheld due to earlier earnings.
If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2020, that limit is $18,240.
A recent survey found that most Americans do not know the age at which they will be eligible for their full benefits. Moreover, fewer than half of the members of each generation said they were confident in their Social Security knowledge.
Once you have started receiving benefits, you have up to one year to withdraw your application as long as you are younger than your full retirement age. But you can only use this strategy once. And you must repay all the benefits you and your family members received.
Another way to still increase your benefits later is to suspend your benefits once you reach your full retirement until age 70. This will let your benefits grow larger, and potentially make up for some benefit cuts for claiming early. But you have to be able to forgo receiving your benefit checks during that time.
Headlines that point to Social Security’s funds running out can scare people into thinking they should claim their benefits as soon as they’re eligible. It is important to understand that Social Security benefits will still be there in the future. The Social Security Administration’s latest estimates indicate the trust funds will be depleted in 2035, at which time 79% of benefits will be payable.
Could the COVID pandemic shorten these projections? Again, that is where not “going it alone” and working with your financial professional will give you better insight.