Taking the money and running may cost you dearly when it comes to your Social Security retirement benefits.
That’s the consensus of many financial advisers, who believe that decision could cost you $100,000 or more.
“Many people are taking Social Security without giving serious consideration to its implications,” says Joe Elsasser, a certified financial planner and the creator of the website SocialSecurityTiming.com. “The average client knows startlingly little about making this selection.”
That’s even though this is one of the most important decisions a pre-retiree can make. The decision whether to take retirement at age 62, 66 or 70 is a critical one, he adds.
As a principle of retirement planning, the later one takes Social Security, the higher the payments. The Social Security Administration calls it “a delayed retirement benefit.”
For each month you delay receiving a check after your full retirement age — 66 for people born between 1943 and 1954 — you get a small raise.
The annual amount of the delayed retirement benefit, advisers say, is 8 percent. It is prorated for each month — 2/3 of a percent each month.
“What is overlooked by most people when they make their Social Security election,” Elsasser says, “is how their choice affects the rest of their family.”
Opting for early, middle or late Social Security, he adds, can determine if a couple or a family obtains all the “spousal benefits that might otherwise be left on the table.”
For example, let’s say a husband who has earned more than his wife collects Social Security at age 62 and then dies before his wife. “What he’s done,” Elsasser says, “is hurt the wife, because when he dies she is going to get his benefits, which are lower because he took early retirement.
“Particularly for middle- or upper- income couples, Social Security is a big part of the retirement pie,” he says. “And getting an extra $100,000 or $150,000 or more out of Social Security can make a major impact on the sustainability of a retirement plan.”
Adviser Michael Kitces points out that delaying often makes sense, because Social Security payments act as a hedge against exhausting retirement assets.
“Delaying Social Security benefits is essentially a triple hedge,” Kitces says. “It works best when you live a long time, have high inflation, which triggers Social Security cost-of-living adjustments or have poor market returns, which make you thankful you have a higher Social Security benefit.”