Weighing the Benefits of Delaying Social Security
If you’re fortunate enough to have a substantial nest egg and a pension, you may be considering delaying Social Security until age 70. This strategy can significantly boost your monthly benefits, but it also means relying more heavily on your savings for several years. Is the tradeoff worth it?
Understanding Your Income Sources
Funding retirement is about having enough income to cover your expenses. For most people, Social Security represents a critical source of retirement income, supplemented by pensions, retirement accounts, rental income, and part-time work. On the expense side, essentials like housing, food, and healthcare take priority, followed by discretionary expenditures like transportation and entertainment.
The Benefits of Delaying Social Security
Delaying Social Security can increase your eventual benefits, with your benefit growing by about 8% annually each year you delay beyond your full retirement age – up until age 70. This means waiting can provide a significantly higher income later in life. For instance, if your benefit is $2,000 per month at full retirement age, claiming at 62 would cut it by 30%, leaving you with just $1,400 per month. Waiting until age 70, on the other hand, would boost your monthly check to around $2,480 per month – a 24% increase.
Considering Your Options
Financial advisors recommend delaying Social Security if you have other income sources and can afford to rely on your savings for several years. However, deciding when to claim Social Security involves contemplating uncertainty, including investment returns, inflation, and longevity. A financial advisor can help you understand the pros and cons of your options and create a personalized retirement plan.
Creating a Retirement Budget
To determine if delaying Social Security is right for you, create a retirement budget accounting for all income sources. Calculate your increased Social Security benefit from delaying and weigh if the boost is worth shrinking savings for a few years. Consider other factors like spousal benefits, taxes, and unknowns like inflation, market volatility, and longevity.
Getting Professional Guidance
If you’re unsure when the right time is to claim Social Security, consider consulting a financial advisor. They can help you project your benefits, create a retirement budget, and develop a plan to minimize taxes and protect your estate. SmartAsset’s free tool can match you with up to three vetted financial advisors who serve your area, and you can have a free introductory call to decide which one is right for you.
Maintaining an Emergency Fund
Remember to keep an emergency fund on hand in case you run into unexpected expenses. Aim for a liquid, high-interest account that can earn compound interest and help you weather any financial storms.
By carefully weighing the benefits and drawbacks of delaying Social Security, you can make an informed decision that sets you up for a comfortable and secure retirement.
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