By David Wilkening, Contributing Writer
REGION – When should you start collecting Social Security? Anytime you want once you reach age 62. That’s a fact. Another fact: Taking it early, before age 70, means your benefits will be less than if you waited. And now we come to what we don’t know: Just what age should you choose to start?
That “unknown” is far from a fact. But it’s a key question. And it’s a “decision nearly all Americans will make during their lifetimes, and one that may significantly influence one’s retirement income,” said Jim O’Neil, a financial advisor with Boston-based Appleton Partners Inc. “Often, however, information can be confusing, which can lead to making compromised election decisions. When to begin taking distributions may seem straightforward. In reality, though, it is not.”
And most of us will get it wrong.
The earlier you claim the lower the benefit
“The choice of when to begin has a meaningful impact on the dollar value of the benefit that will be received―benefits claimed early will be reduced and benefits that are delayed will be increased,” according to Amy Crandall Kaser, a portfolio manager with Boston Trust Walden Company.
When to start claiming your Social Security benefit is one of the most important retirement decisions. But it is often a bad decision. That was the result of a 2019 study from United Income, an online investment management and financial planning firm.
Most households lose $111,000
Only 4 percent of retirees start claiming their Social Security benefits at the most financially optimal time, according to the report. That means the remaining 96 percent of retirees are losing out on a collective $3.4 trillion in potential retirement income. That means $111,000 per household.
While most Americans typically can start claiming their Social Security benefits as early as age 62, the size of the monthly benefit grows around 8% annually for each year they wait, maxing out at age 70. Then there’s no point, benefits-wise, in continuing to work. But the complexity of the program―its handbook has more than 2,700 entries on topics ranging from remarriage to black lung benefits― means that many Americans aren’t fully informed before making their decision.
”Benefits can get confusing quickly,” Crandall Kaser noted.
She uses a chart online in her article on “Navigating Options.” It is a graphic similar to the one used by the Social Security Administration. It shows the wide range of benefits. The chart is for workers who receive a benefit amount of $1,000 at a full retirement age of 67. It shows a $700 monthly benefit at age 62. Benefits steadily rise with age: $1,000 at age 67 and $1,240 at age 70.
Best answer: Wait as long as possible
The Social Security Administration site itself has a lot of information but no real answer to their frequently asked question of “when to start.” It says the answer is that there’s no “single best age.” The site urges personal decisions based on whether it’s better to start getting benefits early with a smaller monthly payment for more years or wait for a larger monthly payment in a shorter time frame. The answer is personal, the site said, and has to be judged by your “current cash need, health and family longevity.”
Resources for making the decision
The complicated system of when to take Social Security is full of internet sites for recommendations and articles on the best claiming systems, wrote financial planner Mitch Zides for Constant Guidance Financial, based in North Attleborough. “It’s a complicated system and since the Social Security administrators don’t understand your unique personal situation, they can neither provide advice nor make recommendations,” he explained.
There are also plenty of websites that offer charts or calculators showing the break-even point when you start taking Social Security at various ages. The break-even point is typically between age 77 and 83, and with increasing life expectancies, many people could collect Social Security well beyond those ages. A 65-year-old man in the US, in average health, now has a 35 percent chance of living to 90. For women, the odds are nearly even―46 percent.
When to collect early
Collecting early retirement benefits may make sense if you’re broke or nearly so, or if you’re unemployed. Or especially if you have serious health issues and don’t expect to live long enough to collect benefits for very long. The longstanding most popular age to claim Social Security is 62, which includes about one quarter of applicants. Financial planners often make the point that early claims are often based on the belief that the Social Security Trust Fund will be depleted in 2034. But in the past, politicians have repeatedly shored up the system.
This system is eventually going to run out of money, Zides admitted. “The
government will likely change the rules.” He expects benefits to be cut. But adds that it’s impossible to predict what changes might be adopted.
Early claims declining
Researchers Anqi Chen and Alicia Haydock Munnell authored a Social Security study in 2021 by the Center for Retirement Research of Boston College. The study called “Pre-Covid Trends in Social Security Claiming” found that the percentage of all initial claims by people first eligible at age 62 showed a steady decline over the past two decades. They viewed that as good news for retirement security.
Waiting for better benefits up until the age 70 was a positive. “There’s a pretty significant difference for waiting,” Chen said, under normal circumstances that don’t involve health issues or, in some cases, immediate economic needs for applying earlier for Social Security income.
Many others agree with the study that cited the best course is waiting until 70 for maximum benefits. “Generally speaking, the best strategy―as long as income and expenses permit it―is to wait for as long as possible,” suggested Jill Fopiano, president of O’Brien Wealth Partners in Boston.
Zides agreed. His own recommendation for most people: Wait until 70. That’s what he plans to do for himself.