Are you retiring soon? If so, you may be wrestling with some big decisions. How much income should you take from your savings? Should you downsize to a smaller home? Do you need long-term care insurance?
Perhaps one of the biggest questions you may face is when to file for Social Security. Should you file as soon as you’re eligible? Or wait as long as possible? Once you start receiving benefits, you can’t change your mind.
The timing of your filing is an important factor in the calculation of your benefit amount. If you file early, you’ll see your benefits reduced. On the other hand, you could delay your filing, which would lead to an increase in your benefit amount.
You can file for Social Security as early as age 62. However, your benefit is permanently reduced if you file at any point before your full retirement age (FRA). Most people reach their FRA between their 66th and 67th birthdays.1
You don’t have to file at your FRA, though. In fact, you can delay your filing as long as you wish. For each year you wait past your FRA, your benefit amount increases 8 percent, up to age 70. Conversely, your amount could be reduced as much as 25 percent if you file before your FRA.1
Many people assume it’s always wise to delay filing. That may be true for many retirees, but it’s not the best strategy for everyone. Your filing decision should be based on your unique needs and goals. Below are three reasons why it could make sense for you to file early. You may want to consult with a financial professional before making your decision.
You were forced into early retirement.
According to a recent study from the Employee Benefit Research Institute, 46 percent of retirees are forced out of their careers earlier than they’d planned, either by layoffs or because of health issues.2 If you’re forced to retire early, you may have to make some difficult financial choices. Social Security could be your only reliable income source. If that’s the case, it may make sense to file as soon as possible.
While a delayed filing could bring a higher benefit in the future, it may not be worth the wait if you’ll be in a challenging financial position today. That’s especially true if you will be forced to take on debt while you’re waiting to file. If Social Security is truly your only income option, it may make sense to file now.
You don’t expect to live long in retirement.
Do you have an illness or a health condition that leads you to believe you won’t live long in retirement? If so, it could make sense to take Social Security earlier rather than later. An increased benefit doesn’t have much value if you only collect it for several years. Instead, you could file early and benefit from lower payments over a longer period of time.
Be careful about using family history to make this decision. Medical treatments and technology have advanced rapidly in recent years. Just because your parents or grandparents didn’t live long past 70 doesn’t mean the same will be true for you.
You’re more concerned with long-term aggregate income than with annual income.
A higher benefit amount is always better, right? Not necessarily, in the long term. If you wait until age 70 to file, your benefit amount will be significantly higher than if you’d filed at 62. If you file at 62, however, you’ll get the benefit payment for eight more years than you would by filing at age 70. It’s possible those added years make up for the reduced income.
If you’re not concerned with annual payments but are more focused on your total benefit over the long term, you may want to analyze the two options carefully. A financial professional can perform a breakeven analysis for you and identify the age at which the higher payment becomes more beneficial than the reduced early payment.
A financial professional can help you analyze your options and determine the best strategy. If you’re ready to plan your income and how Social Security decision impacts it, contact us at M&P Personal Financial Planning. We can help you analyze your goals and create a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov
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