Deciding when to claim Social Security retirement benefits is probably one of the most important financial decisions you will make in your lifetime.
Yet many people are at risk of failing to pick the right strategy for them.
The stakes are high. If you claim too early, you’re signing on to receive reduced benefit checks for life.
But if get the timing right, and draw down your retirement money and Social Security benefits in the correct order and at the right time, you could make your money last up to seven years longer, according to Bill Meyer, CEO of Social Security Solutions.
Because Social Security has thousands of claiming rules, that often means working with an expert, Social Security claiming software or both to craft the right strategy for your situation.
But first, you may want to brush up on your Social Security know-how now. Here are three common blind spots:
Not knowing when you’re eligible for full benefits
Recent research has shown that people are often stumped by when they should claim.
If you start receiving checks when you first become eligible for retirement benefits — age 62 — you will receive reduced benefits. But if you wait until your full retirement age — typically age 66 or 67, depending on the year in which you were born — you will receive 100% of the benefits you’re entitled to based on your work record.
If you hold out even further, until age 70, you will get a boost of about 8% per year for each year you wait from your full retirement age.
A recent survey from Nationwide found that most Americans do not know the age at which they will be eligible for their full benefits. Moreover, fewer than half of the members of each generation said they were confident in their Social Security knowledge.
“There’s a lot of misconceptions and a lack of basic understanding around the benefits that is adding to a lot of the angst and fear and concern that people have,” said Tina Ambrozy, senior vice president of strategic customer solutions at Nationwide.
Not knowing all your options if you do claim early
Like other downturns, the economic slump prompted by Covid-19 is expected to prompt more people to claim Social Security retirement benefits early.
Alicia Munnell, director of the Center for Retirement Research at Boston College, said she expects more people will opt to start receiving checks early, as they did during the financial crisis of 2008-09.
“I expect it to spike up again in 2020 and ’21, just because people are going to just find it virtually impossible to find new work,” Munnell said.
While many may feel they have no choice but to claim early, they should know they may be able to change their strategies if their fortunes shift for the better, such as finding good-paying work.
Once you have started receiving benefits, you have up to one year to withdraw your application as long as you are younger than your full retirement age. But you can only use this strategy once. And you must repay all the benefits you and your family members received.
Another way to still increase your benefits later is to suspend your benefits once you reach your full retirement until age 70. This will let your benefits grow larger, and potentially make up for some benefit cuts for claiming early. But you have to be able to forgo receiving your benefit checks during that time.
Not planning for benefits to be there when you retire
Headlines that point to Social Security’s funds running out can scare people into thinking they should claim their benefits as soon as they’re eligible.
But it’s important to understand that Social Security benefits will still be there in the future, though they could be reduced.
The Social Security Administration’s latest estimates indicate the trust funds will be depleted in 2035, at which time 79% of benefits will be payable.
But those projections were released in April and did not take the effects of the pandemic into account. New research has said the expiration dates could now be 2032 or 2028.
There are proposals on Capitol Hill to restore the program’s solvency.
When making your retirement plans, it would be wise to count on income from Social Security, even if it could be reduced. That goes for millennials, too, according to Joe Elsasser, president of Covisum, a developer of Social Security claiming software.
Not including Social Security income in your retirement plan is a “horrible” idea, he said.
“That’s like building a plan around the stock market going to zero,” Elsasser said. “Because tomorrow is a long way away when it comes to Social Security, I think it’s absolutely fair to plan for benefit cuts.”
