Are you going to take Social Security?
Social Security is a big part of retirement for most Americans. But before you apply for it, you should ask yourself these three important questions.
Remember, the answers could have a big impact on how much you receive, and when you should apply.
3 Key Questions
1. When should I apply?
Do you want Social Security? You can:
- Receive benefits at age 62
- Wait until your full retirement age (which is likely 66)
- Wait until you are 70
Sounds simple, right?
But if you claim your benefits early (ages 62-65), your amount will be less than what you would have earned at full retirement age.
You can do even better.
Waiting until you are 70 means an even higher benefit than what you would have gotten at full retirement age. That’s 8% per year over and above the total you would have received at full retirement age. One important caveat: Your extra benefit is NOT compounded yearly. Simply, if you were to receive $1,000 a month at age 66, and you wait until age 70, you’ll receive an extra $320 each month.
2. What happens if I keep working?
Okay, so depending on your income and age, working longer could increase your Social Security benefits.
That’s a good thing, right?
But what about working after you begin receiving benefits? That depends on how much you make. If you apply for Social Security before you reach full retirement age, and you keep working, you’ll be docked $1 for every $2 you earn above the annual limit, which, as of 2016, is just under $16,000.[1]
3. How can I earn more?
If you have no other concerns other than maximizing your Social Security benefits, the best way to increase your monthly payout is to wait until you are 70 years of age.
HOWEVER, we now explain to clients (and this is not advice you should take until you have spoken with an advisor), that if you aren’t going to need Social Security to survive—let’s say you have ample other financial resources—then you should consider applying as early as possible.
One of the reasons you might consider taking Social Security as early as possible, is that substantial changes to the program may be on the way.
Changes that could be implemented without warning.
Conversely, if you can wait, and if it’s likely that you’ll need Social Security to meet your expenses, if at all possible, delay until age 70.
When you consider taxes, delaying your benefits, and possible changes to the program, Social Security is anything but straightforward. For answers to your investment questions and how Social Security can be used to augment a healthy retirement plan, speak with an advisor today.
[1] Social Security Administration, 2016
