HomeMarket NewsUnveiling the Golden Age to Secure Your Social Security Benefits

Unveiling the Golden Age to Secure Your Social Security Benefits

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Many American retirees grapple with a crucial financial decision – when to commence their Social Security benefits.

For nearly 90% of retirees, this benefit forms a significant part of their monthly income, with two-thirds constituting a primary source, as per an annual Gallup poll. Therefore, optimizing these benefits should be a paramount concern.

Although individuals can start claiming Social Security retirement benefits at age 62, three independent sources converge on a distinct age that is ideal for the average retiree. All factors constant, retirees should delay claiming until they reach the age of 70 to heighten their financial standing in retirement.

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Unlocking the Advantages of Postponing Benefits until Age 70

Two main factors contribute to the benefits of delaying retirement benefits until the age of 70 for numerous retirees.

Firstly, for every month retirees defer their benefits past their full retirement age, they accrue delayed retirement credits. This results in a 2/3 percentage point increase in their monthly benefits for each month delayed until the age of 70. For instance, individuals born in 1960 onward, with a full retirement age of 67, can enjoy a 24% boost in their monthly payment simply by waiting an extra three years to initiate benefits.

Secondly, as the annual cost-of-living adjustment (COLA) is pegged to the total payment, delaying benefits can lead to a compounded effect over time. Retirees not only benefit from COLA during the deferral period but also receive this adjustment on the enhanced benefit once they commence claiming. This cumulative effect can significantly augment the overall payout over a retiree’s lifetime.

Diving Deep into Data Analysis

Determining the optimal age for claiming Social Security predominantly hinges on predicting one’s life expectancy. Though crystal ball predictions are improbable, periodic life expectancy tables published by the Centers for Disease Control and Prevention (CDC) serve as a solid foundation. Some researchers, like United Income and Laurence Kotlikoff, amalgamate longevity estimates with retirement spending data to ascertain the best age for benefit claims.

According to CDC data, the optimal age to claim Social Security is 70, based on break-even ages – the age individuals must attain to justify deferring benefits. For instance, individuals postponing benefits from their full retirement age to 70 should live to 82 1/2 to break even. Comparative to the CDC data indicating a life expectancy beyond 84 years for the average 66- to 67-year-old, and over 85 for a 70-year-old.

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A study by Laurence J. Kotlikoff, David Altig, and Victor Yifan Ye published in 2022 harnessed data from various surveys to determine the optimal claiming ages for retirees. Results indicated that 90% of Americans aged 45-62 should wait until they reach the age of 70 to optimize their retirement benefits, potentially boosting their lifetime expenditure by over 10%.

Although United Income’s findings are less definitive, there remains a strong recommendation for postponing benefit claims until 70. Their study amalgamated historical data from several decades with longevity and spending projections to ascertain the most effective route for retirees to enhance their wealth and financial allocations. The study revealed that 57% of retirees would maximize their benefits by claiming at 70.

Is Claiming at 70 the Right Move for You?

The aforementioned studies serve as initial guidelines to pinpoint the optimal age to claim Social Security. While 70 appears most favorable for the average retiree, very few individuals fit this mold.

Personal circumstances may necessitate a divergent claiming strategy. Reasons to claim benefits earlier commonly stem from a health prognosis curtailing one’s life expectancy or unforeseen retirement plus financial exigencies demanding supplemental income.

In the former scenario, an early claim may optimize the remaining years, although consideration should be given to survivors and how early claiming could impact their future benefits. In the latter, returning to work despite financial strains is a potential path. Fortunately, the Social Security Administration permits application withdrawal within a year of initial claim or benefit suspension upon reaching full retirement age. Contrastingly, the retirement earnings test could influence monthly benefits positively if one chooses to delay claiming. Therefore, individuals in financial straits eager to resume work should not shy away from early claiming.

Although circumstances vary, statistical evidence leans heavily towards 70 as the optimal age for most retirees to claim their Social Security benefits.

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