The US government doesn’t hide the fact that the longer you wait to get Social Security, the more money you collect. In fact, this concept is rather straightforward.
Here’s the deal straight from the US Social Security Administration.
If you start receiving retirement benefits at your age. . .
- 67, you’ll get 108% of your monthly benefit because you delayed getting benefits for 12 months.
- 70, you’ll get 132% of your monthly benefit because you delayed getting benefits for 48 months.
The rejection of these windfalls appears to conflict with the accumulation of income in retirement, a problem usually near and dear to the retiree’s heart.
However, that’s what Americans routinely do. The Social Security Administration reports that only 5% of male retirees in the United States and 7% of female retirees begin receiving Social Security at age 70, when benefits are at their highest.
The Social Security Act also notes that about half of all retirees receive Social Security benefits before full retirement age and that a quarter (25%) take out their benefits on their start date of age 62, when withdrawal amounts are much lower than age 67 or 70.
what you are waiting for? Americans have their reasons.
Why do so few Americans wait until age 70 to collect Social Security? And just as importantly, do they know they’re losing big Social Security money?
Investment experts say these issues may not matter.
“Some people don’t have a choice, for example, someone claiming Social Security disability insurance won’t be able to delay collection, due to SSA rules,” said Jay Zygmont, founder of Childfree Wealth, in Water Valley, Miss.
“In addition, other beneficiaries are pushed into involuntary retirement for a variety of reasons and need to claim benefits before age 70.”
While some older Americans may fully understand how much cash they lose by collecting Social Security early, mistakes have already been made in retirement savings and there is nothing these recipients can do about it, except cashing Social Security money early.
“Most retirees probably understand the loss,” said Paul Tyler, chief marketing officer of Nassau Financial Group in Hartford, Connecticut. “However, many people paint themselves into a financial corner late in their lives. Thus, they feel they have no choice but to Submit applications early.
What did they forget to do? According to Tyler, some common mistakes include:
Not expecting to retire from their jobs before the planned date.
Not starting downsizing early and selling a home in a bear market.
Not looking for ways to use their retirement savings to create a protected income stream until they reach the age of 70.
Your financial picture is important when taking payments
Many Americans weigh their Social Security withdrawals based on personal needs, and this is generally the right step to take at any age.
“For example, if you start receiving Social Security at age 62, the break-even point for waiting and starting Social Security at full retirement age is when you are around 80,” said Melissa Shaw, TIAA Wealth Manager. “If you don’t have a long life expectancy, it might also make sense to start getting Social Security money as soon as possible.”
For couples, it may make sense for the highest earner to wait until the age of 70 to maximize the benefits.
“Usually when a spouse dies, the surviving spouse loses some Social Security income, but if the highest income earner maximizes their benefits, the surviving spouse will keep the higher Social Security income,” Shaw said.
The rate you withdraw from your wallet while you delay getting Social Security is also important. “If you can keep your retirement savings withdrawal rate below 4%, you should delay Social Security for as long as possible,” Shaw added.
Additional factors in the mix
In general, you should consider a number of factors when deciding when to claim benefits, such as other sources of income that should meet your spending needs.
“If you retire at age 67, for example, you need other resources that can meet your needs and whether or not you receive Medicare benefits,” said Colin Karcon, director of wealth planning strategies at TIAA.
“If you decide to delay your retirement and claim Social Security when you are over 65, be sure to consider applying for Medicare in a timely manner or else you could face penalties for late filing.”
There is also a bad tax referred to as the Social Security tax torpedo that affects the phases of Social Security withdrawal.
Steve Parish said, “If you are a middle-income earner, and you pay for your retirement by applying for Social Security rather than tapping into your retirement money, you may end up paying much more income tax than if you had reversed it. , co-director of the American College of Financial Services’ Retirement Income Center.
“In other words, withdraw IRAs and other retirement savings first and wait to file Social Security until later. In some cases, it can mean the difference between paying 0% on Social Security benefits and paying income tax on 85% of your benefits.”
It is also necessary to consider your own mortality rate.
“Although it’s not a good idea to think about it, if you start collecting benefits early, you’ll get less interest for longer,” said Carconi. “If you start collecting benefits later, you will get more benefit for a shorter period of time.”
“The most important thing is to meet with the financial advisor,” Karcon added. “A financial advisor can help you determine the best way to organize your retirement income so that you can meet your income needs.”