When do people claim Social Security?
One of most important decisions that you will make near retirement is when to take Social Security benefits. The internet is full of websites, recommendations, and articles on the best claiming strategies. It’s a complicated system and since the Social Security administrators don’t understand your unique personal situation, they can neither provide advice nor make recommendations.
The federal deficit clock recently surpassed $22 trillion and isn’t slowing down anytime soon. If anything, it’s been speeding up. The language that the Social Security Administration (SSA) added to every benefit statement this year is a follows: “By 2034, the payroll taxes collected will be enough to pay only about 77 percent of scheduled benefits.” This system is eventually going to run out of money (I added that last sentence). 🙂
The government will likely change the rules. They always do. The last major change to Social Security was in 2016 when they ended the popular strategy known as “file and suspend”. I expect that some benefits will be cut in the near future. President Trump’s fiscal 2020 budget proposed spending $26 billion less on Social Security programs, including a $10 billion cut to the Social Security Disability Insurance program. I’m sure by 2034 the rules will have changed drastically.
It’s impossible to know when the government will change the rules and it is only a guess at this stage. It’s best to assume that the program will continue and that the decision on when to take Social Security should only be made after reviewing a full retirement financial plan. There are just too many considerations to factor in on when to take the benefits. They include tax consequences, saving rates, investments, cash flows, budgets, insurance coverage, spousal benefits, and work history.
Most people claim benefits as soon as they qualify at age 62. Approximately 34% of people start collecting at their earliest retirement age or age 62. Social Security reduces your benefit by 5/9 of 1% for every month you claim before full retirement age, up to 36 months. Over 36 months, then your benefit is further reduced by 5/12 of 1% per month. Taking benefits early at 62, amounts to 25% to 30% less than what you would get by waiting until your full retirement age (66 or 67, depending on the year you were born).
Only 3.7% of people delay their retirement benefits to age 70. From your full retirement age (66 or 67) up until age 70, you can receive delayed retirement credits of an 8% increase for every year that you delay. Since Social Security payments are indexed to inflation, it is the best annuity that you can own. Delaying your benefits puts you in the best position to get the most out of the system. The table below provides a good visual breakout of when people claim Social Security.
My recommendation for most people is to claim Social Security at their full retirement age. The chart above is exactly what I would have predicted. The majority of people claimed early and the next largest group waited until their full retirement age. With rising health care costs and life expectancy rates rising for retirees, the people that delayed their benefits will be able to keep better pace with inflation.
I plan to take my social security when I turn 70 but that’s not because I want to make the extra 8% per year from 67 to 70. I believe that my full retirement age will be increased to 70 at some point in the next few decades. I’d be shocked if my full retirement age was still 67 in 20 years. If you have any questions on this topic, I can prepare a personalized analysis on when it is the best time for you to take Social Security.
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