My plan was to wait until I was 70 to claim Social Security – but now I’m not so sure

At 64, Carol thought she had her retirement plan set. She intended to delay applying for Social Security until age 70 to maximize her benefits, but the rising cost of living and inflation made her second-guess the decision. With her savings not performing as well as she had hoped and her daily expenses mounting, Carol begins to worry if she can financially afford to wait that long. Now she faces a tough question: Should she stick with her plan or claim her benefits early to ease her current financial strain?

Carol’s dilemma is one faced by many approaching retirement age. Delaying Social Security benefits can result in a higher monthly payment, but the decision to wait comes with trade-offs. Here’s how Carol can weigh her options and decide what’s best for her financial situation.

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1. The benefits of waiting to claim Social Security

Carol’s original plan to delay Social Security until age 70 was based on sound financial principle: For every year she waits past full retirement age (FRA), she will receive an 8% increase in monthly benefits . For someone whose full retirement age is 67, waiting until age 70 could mean a 24% increase in benefit. That’s a significant boost, especially considering that Social Security payments are adjusted annually for inflation.

If Carol is healthy and expects to live to 80 or more, waiting could give her more financial security in her later years when other sources of income may be less certain. The higher monthly benefit would also provide more protection against inflation over time.

2. The downsides of waiting

However, waiting also has its downsides. Carol would be giving up several years of income, which could strain her current budget. With rising costs for essentials such as food, healthcare and housing, Carol may struggle to cover her expenses if she relies solely on her savings.

Additionally, if Carol’s health is uncertain or her family has a shorter life expectancy, waiting to claim Social Security may not be the best choice. In such cases, claiming earlier could provide more financial stability in her active retirement years.

3. Explore your partial retirement options

If Carol is worried about making ends meet while delaying Social Security, she might consider working part-time or freelancing for a few more years. This would allow him to supplement his income without accessing Social Security benefits. Even working just a few hours a week could close the gap, giving her more financial room until she’s ready to claim.

4. Calculate the break-even point

Carol should also calculate the break-even point for claiming Social Security. This is the age at which the total benefits from waiting until age 70 would exceed the total benefits from claiming earlier, say at 64 or 66. For many people, the break-even point occurs in the late 70s or early 80s. If Carol expects to live well beyond that point, the delay might be worth it. However, if she is unsure, she may choose to claim earlier for peace of mind.

5. Request at full retirement age (FRA) vs. early

If waiting until age 70 is too difficult financially, Carol could still wait until her full retirement age (FRA)which for her is probably 66 or 67, depending on her year of birth. Claiming at FRA means she will receive 100% of her benefit. On the other hand, claiming early (as early as age 62) would permanently reduce his benefit by up to 30%, depending on how many years earlier he claims.

If Carol needs the income now but doesn’t want to face the maximum reduction, she might consider claiming at FRA, which offers a good middle ground.

6. Using other assets to close the gap

If Carol has other assets, such as retirement savings in a 401(k) or IRA, she could draw from those accounts to cover her expenses while she delays Social Security. By using her savings to bridge the gap, she can maximize her Social Security benefits at age 70. However, this strategy requires careful planning to ensure they don’t deplete their savings too soon.

7. Seek professional financial or tax advice

Considering the complexity of this decision, Carol would benefit from consultation with a financial advisor or tax expert. These professionals can help her create a comprehensive retirement income strategy that balances her Social Security benefits with her other sources of income.

When looking for a financial advisor or tax expert, Carol should follow these guidelines:

• Work with a fiduciary: A fiduciary advisor is legally bound to act in Carol’s best interest, unlike some brokers or salespeople who might promote products that benefit her more than they do. Fiduciaries offer unbiased advice, tailored to the client’s objectives.
• Check your qualifications: Look for advisors with credentials like Certified Financial Planner (CFP) or Certified Financial Consultant (ChFC). These designations indicate that the advisor has the knowledge and ethics to provide sound financial advice.
• Understand their fee structure: Avoid advisers who work on commission as they may have conflicts of interest. Instead, they opt for fee-based advisors, who charge a flat rate or a percentage of assets under management, ensuring their compensation is aligned with Carol’s success.

Conclusion

Carol’s decision about when to claim Social Security is a critical one. While waiting until age 70 would give her the greatest possible benefit, it’s important to balance that with her current financial needs. By exploring partial retirement, calculating the break-even point, and consulting with a fiduciary financial advisor or tax expert, Carol can make an informed decision that will ensure her financial stability now and in the future. Whether he claims early or waits, the key is to develop a personalized strategy that supports his long-term well-being.

What would you do if you were Carol? Tell us in the comments!

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