Claiming Social Security is an important part of retirement/financial planning, especially the when part. I am not going to write about all of the nuances of when to collect in this post, there is a lot that goes into it and it is late Friday afternoon… But we will go over a basic situation.
You are in a position to collect full Social Security at age 66 and the benefit amount will be $1,000 per month. The question is do we wait until 66 or do we collect as soon as we can at age 62.
Can You Afford to Wait?
The first thing we have to decide is can we afford to wait? Do we have other income we can rely on, either from employment or our portfolio, to help us delay collecting?
If we do, great, let’s talk next about whether you want to wait. For some people it doesn’t matter what math I show them or how much better their retirement plan may look by delaying, they just want their money from the government, NOW!!! If that is you then by all means collect, I am not going to argue with you…
But if you can afford to wait, and you don’t mind waiting, it may be worth waiting.
If you collect early at age 62, your $1,000 monthly benefit is going to be permanently reduced 25% to $750 per month. This lower amount is now the monthly amount you will get cost of living adjustments (COLA) on, and when you pass this is the dollar amount your surviving beneficiary will receive. That is a pretty significant reduction by Uncle Sam.
Waiting Until 66 Has Its Benefits
Now if you would have waited until age 66 you could have collected $1,000 per month, received the COLA on a higher amount, and when you pass your survivor benefit would be $1,000 per month.
The big caveat to waiting is… You can’t die young. We need you to live to around 78, which is the break-even point, or the point you are better off collecting at 66 versus 62.
How do we know how long you will live? We don’t but look at your family health history, the IRS life expectancy tables based on your age and at your own personal health history to get an idea. For most healthy individuals, it makes sense to wait, if you can afford it and are patient.
If you haven’t recently reviewed your financial plan you should contact your CERTIFIED FINANCIAL PLANNER™ Practitioner.