SOCIAL SECURITY – When It Comes to Social Security, What You Don’t Know Can Hurt You –

When It Comes to Social Security, What You Don’t Know Can Hurt You

Many people believe they should begin taking benefits as soon as possible. However, this approach could have a negative impact on your plans for retirement. Think of Social Security as you do other pieces of your retirement portfolio. For many Social Security is potentially their largest retirement income “asset.”

When and how to file for benefits can mean a significant difference in the Social Security income you receive over your lifetime. The average household (96%) loses about $111,000 in potential income by not making the optimal Social Security filing decision. *   The right filing decision can result in having to draw down less from your other individual retirement assets. Deciding when to begin receiving Social Security benefits can feel overwhelming, but it doesn’t have to be.

Age 62 is the earliest age at which you can start receiving benefits based on your own earnings record. Claiming Social Security benefits before your FRA (full retirement age) results in a permanent reduction. Claiming at 62, for example, when your FRA is 67, reduces your benefit by 30%. Once applied, this reduction is permanent and will not be reversed, even when you reach your Full Retirement Age (FRA). Moreover, it can reduce the monthly Social Security benefit your surviving spouse receives.

Here is a chart by Age and Year of Birth that shows Full Retirement Age:

Age 70 is another important milestone for maximizing Social Security benefits. Delaying benefits until after your FRA, up to age 70, increases your monthly benefit. If you can afford to wait, there’s a substantial payoff. For every 12 months past your full retirement age (FRA) that you delay starting Social Security, your benefit automatically increases by 8%. This is due to the Delayed Retirement Credit (DRC). And this doesn’t include COLA (cost of living adjustment). So, if your FRA is 67 and you delay benefits until age 70, your monthly benefit will increase by 24%. Any cost-of-living increases that happen while your benefit is delayed will also increase the amount you receive.

Consider, for example, that your retirement age (FRA) is 67, and that your FRA benefit will be $4,018/month. Also, assume that you will collect checks until age 90, the annual cost-of-living adjustments will be 2.5%, and you earn 5% pre-tax on investments. To buy an annuity that would generate the same income you could receive from Social Security over this time frame, you’d need approximately $569,600 to replicate that stream of income.  You would not treat that amount casually If you had that amount sitting in an account. Instead, you would think long and hard about what to do with it. Your decision about when to start receiving Social Security benefits deserves the same amount of careful consideration.

* 1- CBS/AP (2019). Almost all Americans take Social Security at the wrong time, study says.  CBS/AP.  Retrieved from https://www.cbsnews.com/news/study-says-retirees-lose-more-than-100k-by-claiming-social-security-at-the-wrong-time/

Karin M. Woofter, RSSA^®,  CLU^® Emeritus, LUTCF

For more information and consultations, Karin Woofter can be reached at 907-201-3607, or Karin@mypominsurance.com

www.myPOMInsurance.com

https://rssa.com/analyst/katharina-woofter/

https://www.linkedin.com/company/karin-woofter/

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In the next article:

Protecting against SS fraud:  https://www.malwarebytes.com/cybersecurity/basics/ssn-on-dark-web

Social Security Benefit Information:  Spousal, Divorced, Survivor Benefits

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