Social Security

When Should You Claim, and What’s the True Cost of Waiting?

As financial planners specializing in wealth management for retirees, we often encounter clients wrestling with a key decision: when to start collecting Social Security. Many people believe that waiting to claim benefits is always the wisest choice since the longer you delay, the higher your monthly payout. But the reality is that there are important factors to consider, and delaying Social Security isn’t always the best financial move. In this post, we’ll break down the considerations around Social Security timing and help you understand the true cost of waiting.

The Common Misconception about Waiting

A prevalent belief is that delaying Social Security means you’ll automatically be better off in retirement. It’s true that the monthly benefit increases each year you wait, up until age 70. However, this higher monthly benefit may not always result in the best financial outcome for everyone. For some, claiming early can mean accessing income they need during an active phase of retirement, or even avoiding drawing down other retirement assets too quickly.

Breaking Down the Math: An Example

Let’s consider a hypothetical case similar to a story shared in our recent podcast. Imagine a 62-year-old woman deciding whether to claim Social Security now or delay until full retirement age at 67. By claiming now, she’d receive a reduced monthly benefit. However, if she waits, she’d collect a higher monthly payment at 67.

At face value, waiting seems like a clear choice. But here’s the catch: it takes time for the larger payments to make up for the income you forgo by not claiming earlier. This “break-even point” often falls years down the road. For many people, this delay might mean missing out on additional income in their early retirement years, a time when they’re likely healthier and more active. Understanding this break-even point can be critical when deciding on the best time to claim benefits.

Factors to Consider Before You Decide

1. Health and Longevity Expectations: Your health and family history can heavily influence Social Security timing. For instance, if you have health concerns or a family history of shorter life expectancy, claiming earlier may make more sense.
2. Other Income Sources: Consider your other income sources, such as pensions, investments, or annuities. If you have enough income to cover your retirement expenses, delaying Social Security might be easier. However, if Social Security is a significant part of your retirement income plan, claiming earlier could provide necessary cash flow.
3. Your Retirement Lifestyle: Are you planning to travel, pursue hobbies, or spend more during your early retirement years? If so, having income sooner may align better with your retirement lifestyle goals. Alternatively, some retirees prefer to delay benefits, intending to maximize Social Security for later years when other savings may have diminished.

Making an Informed Choice

Ultimately, the decision of when to claim Social Security is deeply personal. Working with a financial planner can be invaluable in this process. By analyzing your specific financial picture, we can calculate the true impact of waiting versus claiming early and provide a recommendation that aligns with your retirement goals. With careful consideration, you can make a choice that provides peace of mind, knowing that your Social Security decision supports your unique journey through retirement.

Claiming Social Security isn’t a one-size-fits-all choice, and understanding the trade-offs can be the key to maximizing your benefits. Contact us today to discuss your Social Security strategy as part of a comprehensive retirement plan that truly works for you.