Here’s the deal, straight from the US Social Security Administration.
If you start getting retirement at age. . .
- 67, you will receive 108% of the monthly allowance because you delayed obtaining the benefits for 12 months.
- 70, you will receive 132% of the monthly allowance because you delayed obtaining the benefits for 48 months.
Refusing that windfall gain seems contrary to retirement income accumulation, an issue that is usually near and dear to a retiree’s heart.
Yet that’s what Americans usually do. Only 5 percent of male retirees in the United States and 7 percent of female retirees start taking Social Security at age 70, when benefits are at their peak, according to the SSA.
The SSA also notes that about half of all retirees receive Social Security benefits before full retirement age and a quarter (25%) receive them at the start date of age 62, when the withdrawal amounts they are significantly lower than the age of 67 or 70.
Why wait? Americans have their reasons.
Why do so few Americans wait until the age of 70 to collect Social Security? Equally important, do they know they’re losing huge Social Security takeaway dollars?
These issues may not matter, investment experts say.
“Some people have no choice,” said Jay Zigmont, founder of Childfree Wealth, in Water Valley, Miss. “For example, anyone applying for Social Security Disability Insurance will not be able to delay collection, due to SSA rules.
“In addition, other beneficiaries are pushed into involuntary retirement for a variety of reasons and must apply for benefits before age 70.”
While some American seniors may fully understand the amount of money they are losing by collecting Social Security early, savings have already been made in retirement and there is nothing those beneficiaries can do about it except cash out the pension early. social.
“Most retirees probably understand the loss,” said Paul Tyler, chief marketing officer of Nassau Financial Group in Hartford, Connecticut. “However, too many people will find themselves in a financial corner in old age. As a result, they feel they have no choice but to apply early.”
What did they forget to do? According to Tyler, some of the common mistakes include:
– Do not anticipate retirement from work earlier than expected.
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– Don’t start downsizing first and selling a home in a bear market.
– I’m not looking for ways to use your retirement savings to create a protected income stream until you turn 70.
Your financial image is important when taking payments
Many Americans calculate Social Security withdrawals based on personal needs, and this is generally the right move at any age.
“For example, if you start receiving Social Security at the age of 62, the break-even point to wait and start Social Security at full retirement age is when you are in your 80s,” said Melissa Shaw, a manager patrimonial at TIAA. “If you don’t have a long life expectancy, it might also make sense to start withdrawing social security funds as soon as possible.”
For married couples, it may make sense for the highest income earner to wait until the age of 70 to maximize benefits.
“Typically, when one spouse dies, the surviving spouse will lose some of the Social Security income, but if the higher income earner runs out of their benefits, the surviving spouse will keep the higher Social Security income,” Shaw said. .
The withdrawal rate from your wallet while you are delaying taking social security is also important. “If you can keep the withdrawal rate of your retirement savings below 4%, you should delay Social Security for as long as possible,” Shaw added.
Additional factors in the mix
In general, you should consider a number of factors when deciding when to apply for benefits, such as other sources of income you have to meet your spending needs.
“If you retire at, say, the age of 67, you need to have other resources that can meet your needs and whether or not you are receiving Medicare benefits,” said Colleen Carcone, director of strategy. estate planning at TIAA.
“If you decide to postpone your retirement and apply for Social Security when you are over 65, be sure to consider applying for Medicare in a timely manner or you may be subject to late submission penalties.”
There is also a nasty tax called Social Security Fiscal Torpedo that affects the withdrawal stages of Social Security.
“If you have an average income and pay your pension by filing Social Security instead of tapping into pension funds, you could end up paying significantly more income tax than if you canceled the order,” said Steve Parrish, co-director. of the Center for Retirement Income at the American College of Financial Services.
“In other words, withdraw your IRAs and other retirement savings first and wait to apply for Social Security until later. In some situations, it can mean the difference between paying 0% on social security benefits and paying income tax on 85% of benefits.
It is also crucial to consider one’s own mortality.
“While it’s not pleasant to think about it, if you start reaping the benefits earlier, you’ll get less benefit for longer,” Carcone said. “If you start redeeming benefits later, you will be able to enjoy a greater benefit for a shorter period of time.”
“Above all, meet a financial advisor,” added Carcone. “A financial advisor can help you decide how to best structure your retirement income so that you can meet your income needs.”