In our past examinations of Social Security, we have illustrated several general themes that are valuable for retirement planning, including what Social Security provides in retirement and disability benefits; keeping aware of various ages that retirement benefits may be claimed; and how your marriage, estimated life expectancy and number of children may impact benefits. As previously explained, Social Security planning can be complex. To avoid penalties or missing out on maximizing your benefits, here are a few potential complications to keep in mind.
Taking benefits early
There are times for some when claiming benefits at the earliest possible age of 62 is done out of necessity, but it’s been reported that in recent years about a third of retirees are claiming earlier than their FRA for other reasons including the worry that Social Security’s fund may dissolve later on. It’s important to consider if early benefits are worth the reduced payments. Kiplinger notes that “workers who sign up at age 62 in 2017 will get 25.8% smaller monthly payments than if they wait until their full retirement age of 66 and two months,” and that “Monthly payments increase if you delay starting them past your FRA- which would be between 66 and 67 for those born in 1955 and later- culminating in up to a 30.7% greater benefit if you sign up at age 70.”
According to CNBC, it’s possible to pause early benefits “if it’s been less than a year since you started receiving checks,” but the benefits claimed will need to be repaid.
When deciding when to begin claiming benefits, it is essential to understand your full retirement age. This is when you can begin claiming benefits without reduction, and the FRA can vary quite a bit as different birth years each represent a different Full Retirement Age (FRA). This chart from the Social Security Administration (SSA) determines FRAs according to birth year.
The SSA has an additional note explaining that “If you were born on January 1st of any year you should refer to the previous year. (If you were born on the 1st of the month, we figure your benefit (and your full retirement age) as if your birthday was in the previous month.)”
Taking benefits too late
While delaying payments can be greatly beneficial for some people, there’s no significant reason to hold off on claiming benefits after age 70. At this point, your benefit payments are at their max and you are simply not collecting what’s owed to you. There can be drawbacks to waiting too long, especially for those who have costly health issues.
Ignoring other sources of retirement income
Millions of people rely on Social Security for retirement and the agency can provide significant monthly payments, but a well-rounded retirement strategy should not be put off. It’s important to remember that peace of mind can be found in taking care of your 401(k) plan and your Traditional and/or Roth IRA. These retirement plans offer additional benefits later on to bolster your nest egg.
Other complications to note
We recently explained that next year Social Security recipients are expected to see a 2% increase in benefits due to a new cost of living adjustment. However, Medicare premiums are likely to eat into the bulk of the increase. According to Consumer Reports, about 30 percent of claimants- those who aren’t paying Medicare Part B premiums- will see that 2 percent increase beginning in January. “This group includes people brand-new to Medicare, retirees whose premiums are covered by workplace plans, and low-income seniors who collect both Medicare and Medicaid,” states the report.
Last year, it was found that the SSA is in need of improving its communications with people about how to best determine benefits. The US Government Accountability Office report from 2016 notes that the SSA has been struggling to properly inform the public about making benefit claims:
“The Social Security Administration (SSA) makes comprehensive information on key rules and other considerations related to claiming retirement benefits available through its publications, website, personalized benefits statements, and online calculators. However, GAO observed 30 in-person claims at SSA field offices and found that claimants were not consistently provided key information that people may need to make well-informed decisions.”
While it appears that the SSA is in need of improving its delivery of critical information to claimants, individuals, couples and families can benefit from taking an active role in gathering the knowledge that is necessary to develop a Social Security retirement benefit strategy. At New England Investment Retirement Group, we recommend discussion with both family and trusted financial professionals.