An estimated 90 percent of Americans ages 65 or older receive Social Security benefits according to the Social Security administration, and the average annual benefit for a retiree is about $16,000. For nearly two-thirds of retirees, Social Security represents a significant portion of their income. Even for retirees with at least $100,000 in financial assets, according to the Vanguard Group, Social Security can account for 29 percent of total retirement income. Although there are no official records, before Social Security was enacted in 1935, it is estimated the poverty rate among the elderly was approximately 50 percent. Today that number is approximately 9.5 percent, according to the National Bureau of Economics.
With Social Security such an important benefit for retirement income, deciding on when and how to start taking Social Security must be considered when contemplating retirement planning.
In the past, most retirees calculated the “right” time to claim Social Security based on a break-even analysis of his or her life expectancy (how long one will receive benefits) and the amount of the benefit received. This approach might have worked well in the past. However, with people currently living longer, and medical advances coming at such a rapid pace, that advice is no longer sound. That approach ignored the two key features of Social Security. First, Social Security is a lifetime benefit, meaning you’ll continue to receive it for the rest of your life, no matter how long you live. Second, the benefit is adjusted upward for inflation, meaning it should keep up with the costs of goods in the future.
A big concern for most retirees is the risk of outliving their savings. For retirees who can afford to do so, deferring Social Security past your “full retirement age” can greatly increase one’s lifetime monthly benefit. Full retirement age is defined by Social Security according to one’s birth year. Traditionally, full retirement age was 65, but that number is being adjusted, so that full retirement age will be 67 years for those born in 1960 and after. Early retirement age continues to be 62 years old.
Claiming Social Security at 62 could lead to a nearly 30 percent loss in monthly lifetime benefits. Waiting to full retirement age means one will get their full monthly retirement benefit. And waiting until after full retirement age, to the maximum annual benefit at age 70, greatly increases lifetime monthly benefit.
Think about this: at age 65, according to the Social Security Administration, the average woman can expect to live past age 88, and the average man can expect to live past 85. And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95. Delaying Social Security can provide powerful longevity income protection.
A careful review of Social Security regulations, your financial situation, and any health considerations you may have are crucial to developing a strategy to maximize income during retirement. For individuals in poor health or with little or no other financial resources, claiming Social Security before full retirement age may be appropriate.
For many retirees, however, the increase in guaranteed income by waiting to claim Social Security could be an appropriate strategy. Since Social Security regulations are so complex, you may benefit from seeking professional advice.
Anthony N. Corrao is an independent advisor with Corrao Wealth Management. For more than 25 years, he has helped families with their financial goals by developing financial, educational, and retirement planning strategies. He can be found at www.corra
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