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The answer is: Delaying your Social Security will get you significantly more money every month of what could be a lengthy retirement.
Filing for benefits at 62 makes sense for some people, such as those who’ve been sent into early retirement for health reasons and need help paying for medical care (Medicare doesn’t kick in until age 65).
While you can start receiving your Social Security benefit at age 62, you won’t be eligible for the full amount until you reach your “full retirement age,” which varies according to the year of your birth, but falls somewhere between your 66th and 67th birthday.
If you turn 62 this year and decide to claim your benefit, you’ll receive 30% less than you’d get by waiting till full retirement at 67, according to the Social Security Administration (SSA). And if you wait even longer, your entitlement will increase a little bit more each month until you turn 70, at which point your benefit will have maxed out. The SSA’s Quick Calculator can tell you how much to expect based on your age and earnings.
Don’t assume that if you take your benefit early, your monthly payout will increase when you finally do reach full retirement age. You’ll be permanently locked in at the lower rate unless you cancel your benefit within 12 months of filing and you pay back the benefits you’ve received to that point.
2. Putting in extra years of work will pay off
The SSA calculates your benefits based on your 35 highest years of earnings. So if your career is shorter than 35 years, you’ll leave retirement income on the table. If, say, you have a 32-year earning history that ends at age 62, SSA will determine your benefit not by calculating average earnings over those 32 years but by averaging those 32 years plus three years worth of zeros.
A financial adviser told USA Today that a “couple can receive as much as $500,000 more in total benefits if they delay claiming,” assuming the average lifespan of 84 years for men and 87 years for women.
Therefore, if you enjoy your job and can manage to continue working later into your 60s, you stand a good chance of increasing your 35-year average — and by extension your Social Security payout.
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3. You’ll be better protected against inflation
Many Americans worry about the rate at which inflation will eat their retirement savings built up in accounts like 401(k)s and IRAs. According to the Employee Benefit Research Institute (EBRI), a non-partisan policy think-tank focusing on worker benefits, four in 10 workers are not confident their money will be able to keep up with inflation in retirement.
This year, Social Security recipients saw the largest COLA adjustment in decades, 8.7%, as inflation had recently spiked to historic highs. Because the COLA is calculated as a percentage of your benefit, waiting to claim the biggest possible payout means entitling yourself to the most possible COLA funds and thus the best possible protection against the scourge of inflation.
4. Avoid paying more taxes on retirement income
Many people don’t realize that their Social Security benefit is potentially taxable. If your so-called combined income — which includes taxable withdrawals from retirement accounts as well as 50% of your Social Security benefit — exceeds certain thresholds, you will pay tax on as much as 85% of your monthly benefit.
To avoid this scenario, you should minimize the percentage of your retirement income coming from taxable withdrawals from investment accounts like 401(k)s while maximizing the percentage from Social Security.
Suppose that, having waited until age 70 to file for Social Security, you’re collecting the maximum benefit for this year ($54,660). Since only half of that amount ($27,330) counts towards the all-important “combined income” calculation, you might be able to avoid withdrawing an amount of additional taxable funds that would put your income over the threshold ($34,000) that triggers a tax levy on 85% of your Social Security benefits. It would be harder to avoid doing so, naturally, if you were collecting less in Social Security.
5. You could deprive your spouse of benefits
If you’re married, it’s important to consider what would happen if one spouse dies before the other. If you die before your spouse, your widow or widower could potentially receive a larger monthly payout through survivors’ benefits. But if you’re receiving reduced benefits, the survivors benefit is based on that reduced amount.
Just because you’re turning 62 doesn’t mean you should immediately apply for your Social Security benefit. It’s a complex decision, one that could impact the quality of your retirement. and consider talking to a financial adviser who can help you weigh your options and find the best path forward for reaching your retirement goals.
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