By Daniel Korleski, MBA
When an individual should start taking Social Security depends entirely on that individual’s financial plan and personal situation. Americans can start receiving Social Security benefits at age 62, or earlier depending on certain criteria, but the sooner the individual starts withdrawing benefits, the less benefits the individual will receive. For example, if a person starts withdrawing from Social Security at age 62, they will receive up to 30% less than what they would receive at full retirement age. (1)
Full retirement age also depends on the year that you were born. For example, if you were born in 1960 or later, your full retirement age is 67. For those people born between 1943 to 1954, the full retirement age is 66, and for people born between 1955 and 1959, the full retirement age is 66, and increases by two months for every year. (2)
When Should You Consider Collecting Sooner?
In general, it is better to delay taking your Social Security as long as you can. Waiting until full retirement age, or even age 70, allows you to take more money from your benefits, while drawing your benefits too early will reduce your payments permanently. However, every situation is different and there are several reasons why someone would want to claim their Social Security benefits sooner than their full retirement age. (3)
Investment
If you start collecting at age 62, your benefits will be significantly reduced permanently. (4) If you do end up waiting until you are 70 to claim the benefits, you will be able to collect an extra 8% per year or 132% of your primary insurance amount. (5) However, some retirees choose to start collecting Social Security earlier and invest the benefit. This is an option if you believe your invested benefits would yield a better return on investment than the 8% annual increase guaranteed by the government.
Health And Happiness
Some people know that they want to have an increased cash flow in their early to mid-60s, so they can enjoy life while they are younger and healthy. Such individuals may have a solid investment strategy that they are waiting to tap into after a few more years of appreciation. Alternatively, other individuals may need Social Security now because of a critical or terminal illness. The benefit could offer an increased cash flow to someone needing to pay for medical treatment.
If you are thinking about withdrawing your Social Security earlier, consider reviewing this plan with a financial advisor to ensure that you are making the best possible decision for your situation.
How To Maximize Your Social Security Benefits
Waiting to collect your Social Security benefits is the best option for most people, but there are other ways to maximize your Social Security, depending on your personal and financial situation.
Extend Your Years Working
Some people, particularly women who stayed home with their children for some of their working years, can receive less money because they spent less than 35 years working. The Social Security Administration calculates your primary insurance amount (PIA) from your 35 highest-earning years. But if you have worked less than 35 years, then Social Security uses zeroes for those non-earning years in its calculations. (6)
As you can imagine, even a few “zero years” can decrease your benefit significantly. If you are nearing retirement and considering your options, calculate the number of years working you have and consider staying on a few more years so that you can receive the highest benefit possible.
Spousal And Survivor Benefits
Many people can claim spousal benefits based upon their spouse’s employment record. You can qualify for spousal benefits if you lack the work history to claim your own, or if the spousal benefit would be larger than the one you are entitled to. To claim this benefit, you must be 62 years old. If you are divorced but you were married to your spouse for 10 years and never remarried, you may also apply to receive benefits based on your ex-spouse’s employment. Widows are also able to claim their deceased spouse’s benefit if their spouse’s benefit was the higher of the two. (7)
Questions? We Can Help.
We at Cobalt Private Wealth know that sometimes dealing with Social Security benefits can be complicated, especially if your specific situation is unique. If you need help developing a retirement plan that is right for you, reach out to me at danielkorleski@cobaltprivatewealth.com or 719-332-3863 to schedule an introductory meeting.
About Dan
Daniel Korleski is the President & CEO for Cobalt Private Wealth, where he helps his clients grow, manage, and protect their wealth so they can work toward a stronger financial future. With over 30 years of experience in the financial services industry, Dan has served as the managing director for Investment Trust Company, chief investment officer for the Wealth Management Group at American National Bank in Denver, and regional investment manager for the Greater Colorado Region of the Private Bank at Wells Fargo, where he oversaw the management of over $2 billion. In 2008, he was appointed by the mayor of Colorado Springs to the City’s Investment Advisory Committee. Dan holds an MBA in investment management from Midwestern State University in Wichita Falls, Texas, a Bachelor of Science in Finance from Florida State University, and is a member of both the CFA Society Colorado and The Financial Planning Association.
Dan loves to give of his time to his community and has served as Chair of the Board of Trustees of Pikes Peak Hospice Foundation, the Board of Directors of Catholic Charities of Central Colorado, President of the Broadmoor Rotary Club and Vice President of the Board for the Pikes Peak Chapter of Trout Unlimited. Dan was born and raised in Spain and is fluent in Spanish. When he’s not working, you can find him traveling around the world with his wife of 23 years, Montse, fly fishing, golfing, and hiking with his golden retriever, Curro. To learn more about Dan, connect with him on LinkedIn.
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(1) https://www.ssa.gov/oact/quickcalc/early_late.html
(2) https://www.investopedia.com/retirement/when-take-social-security-complete-guide/
(3) https://www.investopedia.com/retirement/when-take-social-security-complete-guide/
(4) https://www.investopedia.com/retirement/when-take-social-security-complete-guide/
(5) https://www.investopedia.com/retirement/when-take-social-security-complete-guide/
