Did you know only 4% of Americans begin taking their Social Security at the “right” time?
This startling statistic was discovered by the firm United Income. That means 96% of retirees are missing out on a collective $3.4 trillion in potential retirement income. That’s about $111,000 per household.
If you’re near retirement and wondering when the optimal time is to apply for Social Security, you’re clearly not alone. The good news is here at Beacon Capital Management we work to help people like you navigate these important life decisions. In this article, we’ll provide key information to help you determine the best time to apply for Social Security.
How Social Security Retirement Benefits Work
As you approach your golden years, understanding Social Security retirement benefits becomes critical. These benefits, provided by the Social Security Administration (SSA), offer a steady income source during retirement. But how does it work, and who qualifies?
The Social Security system operates on a pay-as-you-go basis, where current workers contribute part of their earnings through payroll taxes. These contributions then fund the benefits current retirees receive. To qualify, you need to have earned enough credits through years of work and Social Security tax contributions.
However, the age at which you apply for Social Security retirement benefits can significantly impact the amount you receive. While you can start receiving benefits as early as age 62, your monthly benefit will be reduced if you retire before your full retirement age of 67. Conversely, if you delay applying for benefits beyond your full retirement age, your monthly benefit will increase. In fact, the size of your monthly benefit grows around 8% annually for each year you wait – maxing out at age 70.
When to Apply for Social Security: Things to Consider
Understanding when to apply for Social Security benefits is crucial for maximizing them. To make an informed decision, consider factors like your:
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- Overall financial situation
- Income sources
- Health
- Retirement age
- Expectations for lifestyle in retirement
- Life expectancy
If you choose to work while receiving Social Security benefits, your earnings may affect your benefit amount. There’s an earnings limit that may reduce your benefits if you haven’t reached your full retirement age. However, once you reach the age of 67, you can work and earn as much as you want without any reduction in your benefits.
Generally, we like seeing healthy people wait as long as possible before claiming their benefits since they can earn more that way. But taking all these factors into account can help you make an informed decision that aligns with your financial and retirement goals.
Luckily, the SSA also provides an online calculator where you can plug in your numbers and see an estimate of what your monthly benefit could be. Beacon Capital Management also offers a Free Retirement Social Security Analysis for people who have saved $250,000 for retirement and have not started drawing benefits.
Social Security and Longevity
According to the SSA, in 1940, the life expectancy of a 65-year-old was almost 14 years. But today, it is over 20 years.x The number of Americans 65 and older will increase from about 58 million in 2022 to about 75 million by 2035.x This has led some pundits to speculate as to whether, eventually, Social Security benefits will disappear altogether.
We don’t have a crystal ball, but we don’t believe that will happen. Social Security is part of the fabric of a quality livelihood in America. Millions of people in our country depend on that income. Not to mention retirees are the active voters! How well do you really think it would go over if our government just took Social Security benefits away?
You should plan on Social Security being there for you. It should never be the only thing you rely on in retirement, but it is a cornerstone of your overall financial plan.
Estimating your future Social Security benefits now is a key to your stability in retirement. Use our free Retirement Savings Calculator to estimate how much you’ll have in retirement. Getting this clear picture of how much money you’ll have in retirement, as well as your monthly retirement income, can give you so much peace of mind.
As always, we recommend consulting with a fiduciary financial advisor to help you understand all the rules around Social Security. When you take Social Security is one of the most important decisions you’ll make about your retirement. If you have saved over $250,000 for retirement and have not started drawing Social Security, Beacon Capital Management will provide you with a Free Retirement Social Security Analysis. You’ll learn both when and how to draw your benefits to maximize your retirement income. Just click here or call us to schedule your Free Retirement Social Security Analysis at (615) 716-2061.