If you have spent some time researching this topic, you likely have been encouraged to postpone applying for your Social Security retirement benefits for as long as feasible. This advice stems from the fact that the designated full retirement age—when you can receive 100% of your expected payouts—is typically set between ages 66 and 67, varying based on your birth year. Opting instead to claim these benefits at age 70 could result in substantially larger monthly benefit amounts.
On the opposite end of this spectrum, though, lies another alternative. Despite resulting in significantly lower payouts, one could argue for filing as early as age 62. However, make sure not to rush into this decision, as it is an irreversible choice.
Where should you put your $1,000 investment at this moment? Our analysis team has just disclosed their thoughts on what they consider to be the 10 best stocks to buy right now. Learn More »
Patience pays off
As has been mentioned, everyone who qualifies for Social Security Individuals entitled to retirement benefits will receive the complete amount they were expecting solely if they begin claiming them upon reaching their full retirement age, or FRA This year’s Full Retirement Age (FRA) is set at 66 years and 10 months for individuals born in 1959. The following year, however, the FRA will increase to a complete 67 years, remaining unchanged thereafter unless modified once more through new legislation.
However, if you decide to postpone claiming these benefits, your future payouts will increase by approximately 0.66% each month, which adds up to an annual boost of around 8%. Specifically for those attaining their full retirement age this year or next year, waiting until age 70 could result in a significant hike of roughly 25% in the amount of your monthly disbursements.
Don’t delay initiating your payments significantly past turning 70. The Social Security Administration ceases to increase your future monthly benefits after age 70, and they will only backpay you up to six months.
Perhaps you considered initiating these payments far earlier than your Full Retirement Age (FRA)? This approach is also feasible. However, doing this significantly diminishes the amount of each payment, potentially lowering it by up to 30% should you decide to start claiming benefits at the youngest eligible age of 62. Quite a hit!
The arguments for making the claim as soon as possible
Why would someone potentially jeopardize their financial stability in the long run by securing these reduced payment rates?
There are indeed several clear-cut reasons for taking this step. The primary one is that you might require this funds just to ensure basic needs like food and shelter, with alternatives such as employment or leveraging any property you own not being viable solutions at present.
Another compelling rationale for initiating Social Security benefits prior to reaching your Full Retirement Age, despite not requiring immediate funds, stems from the potential opportunity to allocate these resources elsewhere. For instance, you might consider investing them in equally secure ventures instead.
And whether good or bad, this benchmark is quite modest. Even though the actual return on your funds locked into the Social Security system fluctuates each year, it generally aligns with the country’s consumer inflation rate or matches the returns on Treasury securities. U.S. Treasury bonds .
From 2008 through 2021—when interest rates hovered around their lowest points—it was not feasible to outperform this rate of return using bonds or certificates of deposit. Now that rates have returned to typical historical levels, many money market funds offer higher yields compared to what you would generally receive from allowing the Social Security Administration to hold onto your funds before you reach full retirement age.
Keep in mind how easy and tempting it might be to avoid actually making this positive move with the money once you have it in your hands.
Another reason to consider taking Social Security earlier instead of waiting is the potential for benefit reductions due to the program nearing financial instability. Should decreased payments become unavoidable (recognizing that such concerns may be somewhat influenced by political factors), it would make sense to receive complete payments for as long as possible before they decrease.
Moreover, earning income while simultaneously receiving early benefits is also an alternative, and potentially a wise choice for many individuals.
Even though earning an income alongside Social Security benefits might decrease those payments, which contradicts a widespread belief, it doesn’t mean you’re losing out. If your benefit amounts are reduced because of wages earned from working, they will be compensated later with larger monthly Social Security payouts in the future. This option essentially lets you enjoy both worlds—you can generate earnings while also collecting benefits without enduring lasting penalties for doing so.
The first idea you came up with is probably your strongest one.
However, if none of these points seem compelling enough to persuade you that claiming Social Security benefits at 62 might be advantageous despite the costs involved? It may just be better this way. Overthinking and poorly planned optimizations frequently lead to outcomes worse than before. Typically, you’re better off utilizing such programs as they were originally meant to be used and adhering to standard practices. retirement and financial plans that have existed for many years.
In spite of that, there’s nothing incorrect about grabbing a pencil and paper to manually work through some genuine figures. For certain individuals, opting for early Social Security can indeed be quite sensible.
The $ 22,924 The Social Security benefit many seniors entirely miss noticing.
If you’re similar to many Americans, you might be lagging several years—or even more—behind on saving for retirement. However, some lesser-known “Social Security strategies” may assist in increasing your retirement earnings. For instance: one simple method could provide an additional $ 22,924 More every year! After mastering strategies to optimize your Social Security benefits, we believe you can retire with confidence and achieve the peace of mind everyone seeks. Just click here to find out how you can gain deeper insights into these tactics.
Check out "The Hidden Truths of Social Security" »
The Motley Fool possesses a disclosure policy .
