Deciding when and how to maximize your Social Security benefits is one of the most important decisions that people have to make. Social Security is one of the few benefits that provide for a lifetime of income that keeps pace with inflation. In the past, companies often offered their employees’ Pension Plans providing them with a lifetime of income. Today, employees are rarely offered Pension Plans as a benefit due to the high cost of maintaining this type of plan (employer funded). Instead, most companies offer a 401(k) plan which is employee funded and does not provide for a guarantee of income for life. As a result, Social Security has become increasingly important as a predictable source of income with the additional benefit of being indexed for inflation.
An individual can start collecting Social Security as early as 62 years old. However, collecting Social Security early has limitations that must be considered. Collecting your benefit before your FRA (Full Retirement Age-66 for anyone born between 1943-1954) will reduce your benefit by 25%. Furthermore, if you are still working, the” earning test” comes into play. In 2014, people will lose $1 for every $2 they earn over $15,480. Despite the growing awareness of these disadvantages, a majority of people still take their benefits at 62.
There are many benefits to collecting Social Security at your Full Retirement Age or later. Collecting your Social Security benefits at Full Retirement Age, entitles you to full benefits without any reductions. This holds true even if you are working. You are also able to take advantage of two creative strategies that can help you maximize your income; File and Suspend and The Restrictive Application. Furthermore, if you delay your benefits to 70 years old, you will collect an additional 8% per year for each year you delay. Delaying from 66 to 70 years old would increase your benefits by 32% (8%x4 years). There is no one answer as to when to collect your benefits. Each individual has their own set of circumstances and family history (parent’s longevity, health status, and marital status). It is important to know your options when you decide to collect your Social Security benefits.
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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice. A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.