Baby Boomers are reaching retirement age in record numbers. The question many have is, when is the best time to claim Social Security benefits?
Several things must be taken into consideration when making this decision. The most important is one of life expectancy. Do you take your retirement benefits at the earliest possible age of 62 or at the very latest possible age of 70?
Many of the wealthiest people are using a delaying tactic called File and Suspend to manipulate the system and receive the highest benefits. The President is moving to put an end to this so I won’t go into the details.
The truth is that every person has unique circumstances when it comes to retirement. However, there are factors that can lead you to make smarter decisions about when to claim your Social Security benefits. The following five areas of consideration are intended to help you make smarter decisions.
1. Like any meaningful life decision, take this one seriously.
When you’re in your early 60’s and still employed, you may or may not have any idea how long you’ll remain employed. And, if you lose your job, is it likely you’ll easily be employed again? That too, is difficult to predict with certainty. Likewise, if you’re healthy, you simply don’t know if you’re going to remain healthy nor do you know how long you’re going to live. With so many unknowns in the equation, you will want to make the most comprehensive review of potential life situations. Plenty of retirees feel like they could have planned a little better had they taken the decision making process a little more seriously.
2. Don’t use your break-even age
If you speak with a financial advisor who suggests determining when to claim your Social Security benefits based on your “break even” age, don’t do it. Breaking even is rarely an important consideration at retirement, and the entire concept is based on a theoretical investment scenario.
It works like this according to a US News article, “In the comparison between a person claiming at 62 and at 66, he assumes the early claimant invests the money for four years, producing a tidy sum by the time he or she turns 66. Because that early benefit is only 75 percent as much as it will be at age 66, the break-even point depends on how long it takes the higher payments that begin at 66 to be invested and produce a nest egg that's the same size as the one generated by payments—plus investment gains—that began at age 62. He then does the same thing in a comparison of benefits beginning at age 66 and age 70.” (http://money.usnews.com/money/blogs/the-best-life/2013/02/13/whats-your-social-security-break-even-age)
3. What are the risks inherent in longevity?
What are the financial risks associated with living a long life? Is your estate set up to appropriately care for your needs should you become incapacitated yet live beyond typical life expectancy? Will you remain solvent? A robust discussion with your financial planner about all the related longevity risks will set you up to make a smarter decision regarding when to claim Social Security.
4. Think about your personalized life expectancy
It is also important to consider your own personal life expectancy based on your age, health status, and family health history, not simply overall average life expectancy statistics. More and more retirees are living longer than expected and a growing concern is whether or not they’ll outlive their retirement income. This is where Social Security becomes an increasingly important source of income and the decision of when to claim becomes more important. Take all factors into consideration.
5. Prepare to go with the flow, or in other words, stay flexible
Flexibility is key in life and especially when it comes to Social Security decision-making. Postponing claiming your benefits as long as possible while you are healthy and employed is a good strategy. The longer you postpone, the greater your benefits. However, should your life circumstances change, you can change your mind and claim your benefits whenever you choose after 62 and all the way to 70. The best-laid plans are always subject to change. So don’t dig your heels in and think that you have to stick to any given plan. Course corrections are part of life. And with so many factors out of our control, making sure there are plans in place to cover our loved ones, when circumstances change, you’ll be able to go with the flow.