Bad reasons to claim Social Security early
Social Security can be an important part of a diversified retirement plan, as long as individuals understand the program and its benefits.
According to a recent survey, the average age current retirees began collecting was 62. However, most future retirees expected to begin collecting at 65.
Delaying when you collect, if possible, can actually increase your benefit by as much as 32 percent.
The reduction of benefits for those who claim at 62 is 25 percent, 20 percent for those that claim at 63, 13.3 percent at age 64 and 6.7 percent at 65.
For most Americans who haven’t started collecting, full retirement age will either be between ages 66 and 67. Age 62 is the earliest you can begin collecting, while 70 is the latest.
While everyone’s individual circumstances are different, there are a couple of reasons why people have started collecting early, when they should not, according to Tim Sullivan, CEO of Strategic Wealth Advisors Group.
One reason is that they think the program is “going broke,” Sullivan said.
While it is true the program’s trustees forecast that Social Security will not be able to pay full benefits by 2035 – at that time 80 percent of benefits will still be payable.
Another problem? Sullivan noted people often tend to rely on "hearsay" and advice from family and friends, rather than consulting a financial professional. That can increase the chance that misconceptions about the program will be perpetuated, and misunderstandings could lead to mistakes.
“When we’re trying to fill income in the future … the longer you wait, the higher your benefit is going to be,” Sullivan said. “You should treat Social Security like an investment.”
Other people have claimed early because they didn’t think they would be alive long enough to need to maximize the benefit. However, not everyone is aware that Social Security can offer benefits to your family – and it can be inherited by a surviving spouse.
Sullivan added that the majority of clients who come to him, having already filed for Social Security, did so before full retirement age. In fact, according to the Nationwide Retirement Institute, only 32 percent of future retirees were able to correctly identify when they were eligible for full benefits. Meanwhile, only 18 percent of people who have been retired for ten or more years cited the right age.
Working with a financial adviser, however, has proven to help. Those who worked with an expert saw 15 percent greater lifetime income benefits – $1,551 per month versus $1,324.
Sullivan added that when he is able to work with individuals, he can maximize benefits by tens of thousands of dollars.
On the other hand, there are some reasons that it might be necessary for people to file early. Those tend to include the need to pay for health care, losing a job or to cover other immediate living expenses.
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It’s also important to note that if you recently filed, but think you made a mistake, you are able to reverse that decision within 12 months. In order to do that, Sullivan said, you pay all the money back in a lump sum, suspend your account and it will continue to grow until you are ready to file for benefits in the future.