The biggest and most important decision an individual can make when starting retirement is the age they will decide to take social security. I stand by the fact that this is the most crucial decision you will make in your financial life and will have a huge impact on your financial plan depending on the decision that is made.
The majority of Americans are under informed about the rules surrounding social security and how the benefits program works. And we are not alone. If you have ever called the social security office, you may have realized that the workers may even be ill-informed as well.
Every year that someone delays social security equals about 7-8% raise in the yearly benefit. Studies show most Americans are leaving a lot of money on the table by claiming social security early with the highest claiming ages being 62 and 63 years old. A study conducted by United Income projects that only around 4% of retires claim their benefits at an optimal time and the average household loses out on around 110k in benefits.
In my professional experience I hear various reasons why individuals want to take social security at 62 or right when they retire. The two main reasons are:
- They will not have an income anymore
- They underestimate their life expectancy (typically males).
Investment advisers typically love this strategy because money is not being removed the investment portfolios that are being managed. This equals more fees for these firms.
A good financial planning firm will show you the options of withdrawing out of the portfolio vs claiming early. Projections usually work out better when waiting later to claim social security and start drawing from portfolios in the beginning of retirement.
At Creekmur Wealth we model out all scenarios and when it's in their best interest, we advise clients to start withdrawing from their portfolios instead of claiming benefits early and losing money in the long run.
There are a lot of factors that play into the RIGHT time for each individual to claim Social Security, and it can not be simplified down into a simple mathematical decision. Health, retirement savings, family, marital status, and plans for retirement all play a huge factor as well.
You can have the perfect plan in place and a set date you want to claim and then a wrench is thrown out of left field. A popular phrase in the financial industry is “tell me about your last day on Earth and I can tell you the exact day to claim social security." We know that is impossible to do and that is why it's important to have an open discussion about your future and lay all the options on the table.
How Can you Prepare?
The biggest advice I tell individuals is to sit down with a financial planner and their family to go over the available options. You want projections that show a variety of different ages to take social security and the break even point with each scenario. Discussing this along any medical, family, or personal beliefs are going to be crucial to making a decision that will kick off your retirement on the right foot. Dipping into retirement savings to supplement income may be the best path to take.
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It is hard to give an exact age or the best time to take social security and it isn’t a one size fits all answer. Every situation is unique, and no client's plan is the exact same as another. Please contact us at Creekmur Wealth Advisors and we will run a complimentary analysis to help you decide which customized strategy will fit your needs and dreams the best.