You’ve spent decades paying into Social Security and can’t wait to start getting your benefits. However, if you start collecting Social Security as soon as you could, you might be making a very expensive mistake.
Don’t start collecting at age 62
You can begin collecting your benefits when you turn 62. However, if you wait for two or eight years, this will increase your payments by thousands over the course of your lifetime. The reason for this is because it’s not until you get to “full retirement age” that you will be eligible for all your benefits. For most people that’s age 66 or if you were born later than 1960 it would be age 67.
Do the Social Security math
What all this boils down to is if you start claiming your benefits when you reach 62, they will be about 25% less than if you were to not claim them until you reached 66 or 67. Plus, if you wait longer, your annual benefits will increase at the rate of an extra 8% for every year you postpone your benefits until you turn 70.
Here’s an example
For the sake of example, let’s take Bob who now earns roughly $55,000 a year and is trying to decide when he should retire. If Bob files for his benefits when he turns 62, he would get about $15,400 a year. However, if he waits until he’s 66, his benefits would increase to about $20,500 per year. If Bob held off for another four years, his benefits would jump to about $27,100 per year.
How it adds up
If you project this over the course of Bob’s life and he lives to be age 95, he would get about $677,000 in accumulated Social Security benefits because he waited until age 70 to begin collecting his benefits. This compares with the $500,000 Bob would have received had he filed when he turned 62.
A gamble
Waiting until you’re 66 or even 70 can be a gamble and isn’t for everyone. You might be apprehensive about living enough years enough to really get the benefits of waiting for those larger checks. For example, in Bob’s case he would have to live until at least age 80 to get the greater lifetime benefits he would have earned from having waited until age 70 to begin collecting Social Security. Another potential problem is that if you are unemployed or have health issues you might not be able to keep working until age 70 and wouldn’t have enough savings to hold you until then.
Just because it seems better
Just because you would receive more money over the course of your lifetime if you waited until 70 to retire doesn’t mean this would be your best option. The sad fact is that depending on your financial circumstances you just might not have enough money to wait until age 70 to maximize your benefits.
Married couples have more options
Single people can only control at what age they start receiving their benefits. On the other hand, married couples as well as couples that had divorced but had been married for a minimum of ten years have a number of different options to consider. In fact, each of the married partners is usually entitled to three different kinds of benefits – based on their circumstances.
- Spousal benefit – that allows you to get 50% of your spouse’s benefits while he or she is still living. However, if you were not at your full retirement age, you would receive only part of these benefits
- A retired worker benefit – the benefits that you accumulate over your own working years
- Survivor’s benefit – this entitles you to a deceased spouse’s full benefits . However, if you have not reached your full retirement age, you would get only part of those benefits.
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Coordinating how and when they file
Finally, married couples can coordinate how and when they file to increase their annual benefits. In a number of cases it might be better for the spouse who earns less to file for his or her benefits first, allowing the higher earner to wait as long as possible. This strategy both results in bigger benefit checks and also results in a higher “survivor benefit” for the spouse who earned less. This benefit is so critical that there are times when it may be better for even a spouse with health problems to not claim his or benefits though he earns more.
What you don’t want to do
While it might be very tempting to try to hold off until age 70 to begin collecting your benefits, the one thing you should not do is to try to get through those years using credit cards. They might be a way to get the food, clothing, transportation and so forth you need now before you begin earning those higher benefits but it will come with a cost. Most credit cards today have interest rates of 18% or higher. If you were to run up $20,000 in credit card debt at 18% during the four years you were waiting for your benefits, your total interest cost would be something in the neighborhood of $8,200, which you could probably ill afford.
Typs for collecting more Social Security
- Work at least 35 years
- Take a second job
- Get a raise
- Wait until full retirement age to claim Social Security
- Use online tools to learn your best options
- Claim spousal benefits
- Claim twice – retired couples may be able to claim spousal benefits, t then later switch to payments based on their own work records
- Clear your debts
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