Welcome back to Powering Your Retirement Radio. This week we are going to talk about when to claim Social Security. This is basically your claiming decision. We discussed this before, but I still get many questions about the best time to collect. Like most things, the correct answer is it depends. It is a simple math problem if you happen to know what your investments will do and when you will pass away. Thankfully, nobody knows when their end will come, but we can make some assumptions.
I will use the calculations for someone born in 1960 or later. The numbers work similarly but are slightly different for people born before 1960. A table shows notes to see the options at other ages. I will also use a Primary Insurance Amount of $1,000 to try and keep the numbers more straightforward.
Claiming Social Security at age 62. The reduction in the payment would be 30%, and you would get $700 a month instead of $1,000. So if you claim at age 62 or 67, you would have received $42,000. At 67, you could start claiming $1,000 a month, which would be $300 a month more. It would take 140 months or 11 years and eight months, which means that by your 79 birthday, waiting would result in more money over your lifetime.
Now, I have to give you a disclaimer that payments don’t remain unchanged because of Cost-of-Living-Adjustments. They do grow at the same rate, though. So please consult with your local Social Security Office or an advisor to discuss your specific situation.
Claiming Social Security at age 63, your payment would only be reduced by 25%, and you would receive $750 monthly. At your full retirement age, you would have received $36,000. The $250 difference a month would take you 12 full years to break even. So at age 79, the total dollars received would be equal.
Claiming Social Security at age 64, your reduction is 20%; at age 65, the reduction is 13 ⅓%. At age 66, the reduction is 6.5%. The breakeven would be 12 years at age 64 or breakeven at age 79. The breakeven would be 13 years for age 65 or breakeven at age 80. The breakeven would be 12 years for age 66 or breakeven between age 81 & 82.
So if you are looking for the most significant lifetime payment from Social Security, waiting tends to make sense if you believe you will live into your mid-80s. In today’s world, that is not that big of a stretch.
I often say most decisions like this are emotional, not financial. You can look at the numbers, but if claiming at age 62 or 63 allows you to retire and reclaim your life, do you care if you might have more money later? Based on the number of people who claim early, it is clearly an emotional choice because waiting generally results in more money. Yet many people claim early because they fear Social Security will go away. I am not concerned about that, and I will tackle that in another show.
If you start claiming Social Security at age 62 or wait until age 70, you would have a $67,200 head start. In 10 years and one month, the person who waited until age 70 would have broken even and would be making more every month.
The problem for most people is they can’t afford to retire without their Social Security income. The dilemma is Social Security is many people’s only source of lifetime income that will grow. Although these people claim Social Security early, lowering the lifetime benefit they will receive. It is a real-life marshmallow test. If you don’t know what that means, watch the video link in the last sentence.
So I want to keep this week short because there are a lot of numbers. Again remember, if you want the most money possible, generally waiting leads to more money, provide you live into your mid-80s. So if you’re going to retire early or don’t expect to live into your 80s, it makes sense to consider claiming early.
That is what I wanted to discuss this week. First, however, I would like to mention an upcoming episode on college planning. I have a lifelong friend with whom I’ve been friends with for so long. My parents and his mother all went to high school together.
As it turns out, my friend Bryon has impacted my life significantly. After we graduated, we went our own way in college. I was accepted to every school I applied to, which wasn’t helpful. I was hoping only to have one or two schools to pick from. I made a wrong choice and knew I didn’t want to return to the school I picked for my Sophomore year. Bryon encouraged me to transfer to Moravian, where he was going. Fast forward many years, and I was back at Moravian for the inauguration of the school’s new President, you guessed it, my friend Bryon. He made Bryon one of the few to be the President of the school he graduated from.
As we head into college application/admission season, I will share this with you. I plan to have Bryon on as my first guess on the school to answer questions the parents and students might want to know more about. So if this is a topic of interest to you, please visit the Powering Your Retirement Radio website and use the ask a questions tab.