SOCIAL SECURITY TIMING
What is Social Security?
Social Security benefits are designed to provide retirement income, disability income, and survivor benefits to eligible individuals and their families.
These benefits are funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA) during an individuals working years and are intended to provide support for people that are retired, disabled, or families of deceased workers.
The amount of benefits a person receives is based on their earnings history and the age at which they choose to start receiving benefits, with the program aiming to replace a portion of a worker's pre-retirement income based on their lifetime earnings.
When can you claim benefits?
You can claim social security anytime after age 62, however, there are three key milestones most people consider:
1. Earliest possible, which is age 62.
2. Full Retirement Age (FRA), which varies from 66 to 67.
3. Age 70, which is when you receive your maximum monthly benefit.
How does timing impact my finances?
The timing of when you choose to start receiving Social Security benefits can impact your overall financial situation in retirement.
Claiming benefits before your full retirement age (FRA) can result in permanently reduced monthly payments, whereas delaying benefits past your FRA up to age 70 can increase your monthly payments by a certain percentage each year you wait.
Making an informed decision on when to claim Social Security requires considering your health, financial needs, and life expectancy, as these factors will influence the total benefits you receive over your lifetime.
There are two key financial items that are impacted by the timing of when you claim your benefits.
1. Your Social Security Monthly Payment
2. Your Social Security Lifetime Value
Social Security Monthly Payment
For most retirees, their primary focus when considering social security timing is the amount of their monthly benefit. While this value is important, maximizing it might actually negatively impact your financial well being.
By delaying benefits, you forego collecting thousands of dollars in benefits that could be invested, in some cases several years, in hopes that your higher monthly benefit in the future will catch up in value.
When evaluating social security timing, the lifetime value of your benefits is a more important factor to consider than the monthly payment amount.
Social Security Lifetime Value
The lifetime value of Social Security benefits refers to the total amount of money an individual receives from the program over the course of their retirement, from the onset of benefits until the benefits cease.
It includes all regular monthly payments made to a beneficiary (and potentially a surviving spouse), the age at which they start receiving benefits, and the duration over which they collect these payments.
The lifetime value of benefits is the most important factor when considering social security timing.
Calculator
The calculator below can be used to estimate your monthly payment and lifetime value depending on when you claim your benefits.
The calculators on the site provide a high level overview of your financial picture. For comprehensive planning, schedule a meeting.
