Social Security Benefits

Timing is everything

Questions regarding the solvency of the U.S. Social Security System for years have prompted many investors to assume that Social Security benefits simply won’t be around when they retire.

But for Baby Boomers looking to leave the workforce in the near term, Social Security is still an important piece of the retirement income pie. In fact, for many, it can be a much larger piece than they would have ever expected.

The biggest challenge for Baby Boomers with respect to Social Security isn’t whether they will receive the benefit, but at what age they should start collecting payments. There is no one “right” answer to the question of when because everyone’s situation is different, but one thing is certain: Timing is everything.

Most people know they can begin accepting Social Security benefits as early as 62, but most don’t realize that by not waiting until their “full retirement age” of 66 to 67, they reduce their monthly checks by 25 to 30 percent.

In fact, according to the Social Security Administration, 73 percent of people collect their benefits early. Some do so because they fear the program won’t be around for much longer. Others are simply afraid they may pass away early. But for many, it’s not understanding the cumulative lifetime benefits they may be giving up, which can be substantial.

While it makes sense for some people to begin collecting social security benefits right at age 62, many people are leaving money on the table simply because they don’t know that their monthly benefit increases the longer they wait to retire.

If you continue to defer Social Security benefits beyond your full retirement age of 66 to 67, your monthly payments will increase 8 percent each year until they “max out” at age 70.

While age and life expectancy are important factors in your decision to retire, you must also take into account other sources of revenue, such as income from employment and withdrawals from your IRA, 401(k), or other retirement accounts.

The many possible combinations of those various factors give each person a number of different Social Security “claiming strategies” to consider. For a married couple both of whom are age 62, for example, there are 81 different age combinations that could be used to claim Social Security payments.

Finding the right strategy is a complex exercise that is often considered more art than science. And figuring it out on your own can be daunting. That’s where a good financial advisor who knows your financial picture and retirement goals well can be of great help.

This article is provided by RBC Wealth Management on behalf of Gary Kiemele, a Financial Advisor at RBC Wealth Management, and may not be exclusive to this publication. The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance.

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.