One of the most common retirement planning questions we receive is the one about Social Security: Is it better to claim Social Security benefits as soon as possible, or to delay?
As with most retirement planning questions, the answer isn’t the same across the board. Depending on your situation, it may make more sense either to claim Social Security sooner or to wait until later. For the majority of individuals, though, we recommend delaying until age 70, and for a simple reason: If you wait until you’re 70, your monthly benefits will be more sizable.
In thinking about when to claim Social Security, however, a calculation to keep in mind is breakeven—which we’d define as the point at which the amount you receive if you claim later is the same as the amount you would have received if you had started sooner.
Your breakeven point will probably come somewhere between age 77 and 83—though again, it depends on various factors.
It’s important to understand that Social Security was designed with actuarial neutrality in mind. What this means is that, theoretically, you should receive the same total money over the course of your lifetime. But again, claiming later means bigger monthly checks—and for most individuals, that’s an approach that will pay off.
Calculating the Breakeven Point
As you try to calculate your breakeven point, it’s important to avoid potential blind spots. One example of this: Social Security benefits are adjusted every year to keep up with inflation. You can factor those increases into your breakeven calculations and end up with some bigger numbers—but because you’re just estimating what those cost of living increases will be, you may also be overestimating your potential benefits.
That’s why we’d generally recommend not including those numbers in breakeven calculations.
It’s also important to think about discount—that is, what you might have earned if you had taken Social Security earlier and then invested it. This can be a challenging thing to calculate on your own, but a retirement planning professional can help make some smart projections.
An additional consideration: You can claim Social Security early and continue to work, but doing so may mean you get reduced benefits or a higher tax burden. Delaying your benefits helps you avoid this.
A Matter of Timing
There is a right time to take these benefits and maximize their value—and it varies from one person to the next. But our team can help you determine the right timing for you. We invite you to learn more about retirement planning—and Social Security projections, in particular—by contacting Stonepath Wealth Management today.