When Does It Make Sense to Delay Social Security Benefits?
PUBLISHED BY: David W. Magann, PA
Tampa, FL (Law Firm Newswire) March 11, 2021 – Determining when to begin receiving Social Security benefits is a crucial determination that is different for everyone.
For millions of Americans, Social Security benefits are a critical source of income in their post-retirement years. However, deciding when to begin receiving Social Security benefits to maximize the total lifetime amount of benefits can be challenging.
Once an individual reaches the age of 62, they can elect to begin receiving benefits. However, the Social Security Administration (SSA) pays a reduced amount of benefits to those who elect to receive benefits before reaching “full retirement age.” Additionally, the SSA pays increased monthly benefits to those who wait until 70 to receive benefits. Ideally, individuals would wait until full retirement age before applying for benefits. However, this will not make sense for everyone, especially those who do not have a reliable income source.
What Is Full Retirement Age?
The SSA currently considers the full retirement age to be either 66 or 67, depending on the applicant’s birth year. For those born after 1960, the full retirement age is 67; however, for those born before 1960, the full retirement age is 66 or earlier.
Taking Social Security Benefits Early
Choosing to take Social Security benefits early may make sense for some. However, making this election comes at a cost. Specifically, those who begin receiving benefits up to three years early face a reduced benefit amount of five-ninths of one percent for each month they apply early. And those who elect to receive benefits more than three years early face a reduction in benefits of five-twelfths of a percent per month. While this may not sound like a significant difference, it is.
For example, assume an individual’s full retirement age is 66, and they apply for benefits four years before, at 62. In this case, the applicant’s benefits would be reduced, as follows:
36 months of a five-ninths of a percent reduction; and
Twelve months of a five-twelfths of a percent reduction.
This would result in a total of a 25 percent reduction in Social Security benefits. Notably, this reduction is permanent, meaning electing to receive benefits early will forever reduce the applicant’s monthly benefit amount.
Delaying Social Security Benefits
Those who delay applying for Social Security benefits are typically eligible for delayed retirement credit. This will result in an increased monthly benefit amount. For example, consider an applicant whose full retirement age is 66. Below is the total increase in benefit amount assuming they wait to delay the receipt of benefits:
* Receive benefits at 67: 108 percent
* Receive benefits at 68: 116 percent
* Receive benefits at 69: 124 percent
* Receive benefits at 70: 132 percent
There is a clear benefit in waiting to apply for Social Security benefits. Of course, waiting to apply for benefits is a luxury not be available to everyone.
Deciding When to Apply for Social Security Benefits
When it comes to applying for Social Security benefits, the longer someone waits, the larger the monthly benefit amount they will receive. However, deciding to apply for social security benefits is a complex calculation that depends on an individual’s unique circumstances. Below are a few considerations when thinking about when to apply for social security benefits:
The immediate need for cash
Individuals who have the immediate need for cash may not wait until age 70 to apply for benefits. However, for those who have retirement accounts or savings accounts, it may make sense to use those funds up first and then apply for Social Security later.
An individual’s life expectancy
Waiting to receive benefits will result in a higher monthly benefit amount. The trade-off is that the applicant will not receive any benefits until a later age. This may make sense for those who are expecting to live a long life. However, if an applicant has a major health condition, delaying benefits will not necessarily increase the total amount of lifetime benefits because they may not receive as many months of benefits. Thus, when deciding when to receive benefits, an applicant must consider how long they expect to live.
Applicants who are currently earning income will receive a reduced benefit amount. The reduction in benefits equals $1 for every $2 or $3 of income earned, depending on the amount of income earned. Thus, in general, most will not want to apply for benefits while they are still working.
Florida social security attorney, David W. Magann, reminds individuals that it is crucial to put a lot of thought into applying for Social Security benefits. As he recently explained, “while the general rule is that waiting to apply for benefits is best, that is not the situation for everyone. Individuals should consult with an experienced estate planning or social security attorney to review all of their options before making this important decision.”
Attorney David Magann is a Florida social security, disability and estate planning attorney with extensive experience helping individuals qualify for benefits and understand how they can fit into their comprehensive estate plans. Attorney Magann is a compassionate advocate who diligently advances his clients’ interests at every opportunity, providing practical advice and counsel on various legal issues, including when to apply for Social Security benefits. Attorney Magann has offices conveniently located in Brandon and Tampa and can be reached at http://www.floridasocialsecurity.com/.