When Should You Take Social Security?

 Baby boomers, on average, are living longer than any previous generation.  While that’s good news, it also presents new challenges. 

    1)  A longer life increases the likelihood that you’ll have increased medical and long-term care expenses.
    2)  The value of your nest egg will be more significantly impacted by increases in the cost of living over a longer term 

When you consider these factors, it’s more important than ever to make calculated decisions about when to begin drawing Social Security benefits within the context of your overall retirement income plan.  

According to the Social Security Administration, 74% of retired Americans drawing retirement benefits are receiving permanently reduced amounts.  Reduced benefits are the result of filing when you first become eligible for benefits at age 62.  Social Security rules are built around full retirement age (FRA), which is the age at which you are entitled to your full retirement benefit or Primary Insurance Amount (PIA).  

The reason the PIA is an important number to know is because it is the base amount on which:

• Reductions will be made
• Increases given or
• On which spousal benefits are determined  

Eligible Americans who turn 62 this year must wait until age 66 to begin receiving full payments.  But they can receive smaller payments beginning as soon as age 62, or larger lifetime payments beginning as late as age 70.  The net effect of filing at age 62 will be a 25% permanent reduction of annual benefits.  On the other hand, those waiting until age 70 will see their benefit bumped up by 8% for every year they wait to file from age 66 to age 70. That’s a permanent 132% increase in benefit amount for life!   

Here is a hypothetical example illustrating how the math works: 

If Boomer Betsy decides to apply at age 62, or waits until FRA of 66, or delays to age 70.  Boomer Betsy’s PIA is $2,230. 

Age 62: Benefit amount is permanently reduced by 25% from $2230 to $1672    

Age 66: Full retirement age benefit of $2230

Age 70: Benefit increases 8% per year from age 66 to 70 increasing from $2230 to $2943 

Of course, there’s no telling how many years you will be collecting benefits but with careful planning, a strategy can be developed to improve potential lifetime benefits of Social Security by structuring the benefits to begin at optimal times based on your financial plan.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.