As you near your retirement age, deciding when you start collecting Social Security benefits can be a hard decision to make. Before you start collecting right away, here are five tips to consider that may help you plan, and make the best decision for you and your family.
Know your true retirement age
It used to be the norm to retire at 65 and collect full Social Security benefits. Today, the age at which you get your full retirement benefits ranges from 66 to 67 depending on the year you were born. Your full retirement age is the age when you receive your full social security benefit.
Don’t claim early if you don’t have to
If you claim before your full retirement age, then you will be faced with a permanent decrease in monthly benefits. By delaying until 70, many Social Security recipients typically see a five to eight percent annual benefit increase based on the year you were born. This can be a helpful option to boost retirement income. At age 70, there is no benefit to continuing to delay collecting benefits.
It will be important, though, to factor in your life expectancy and your overall retirement situation.
Practice living on a retirement budget now
Will you really be able to live the retirement lifestyle you envisioned? Try a practice run. Create a budget based on what you think your income and expenses will be once you retire. You’ll be able to see how your Social Security benefits will impact your ability to live your planned retirement lifestyle. In addition, you’ll see where you may want to cut back on spending now and what debts need to be paid off before you retire.
If you need help building a practice budget, your Credit Union or bank can help.
Keep working if you need to
Your social security retirement benefit is calculated by using the highest 35 years of earnings divided by 420 (the number of months in 35 years) to determine your averaged indexed monthly earnings (AIME). The Social Security Administration then uses the AIME to calculate your primary insurance amount (PIA) or your monthly benefit amount. Typically, you are earning your highest pay in the years leading up to retirement so working longer to replace some of the lower earning years with higher earning years will increase your monthly benefit amount.
Consider the impact on your spouse
Talk to your spouse. When you decide to claim could affect the survivor’s benefits your spouse receives after you die. Because your surviving spouse will receive the higher of your benefit or theirs, it often makes sense for higher earning spouses to claim at or after their full retirement age to get their highest possible benefit. Claiming too early may reduce the income a surviving spouse may receive.
Deciding when to collect Social Security is a big decision. Start with the Consumer Financial Protection Bureau’s Planning for Retirement tool. You’ll see how your claiming age affects your benefits and get tips relevant to your situation. You can also visit your local Social Security office for additional help.
Additional content provided by the Consumer Financial Protection Bureau.
Article provided by Local Government Federal Credit Union.
The advice provided is for informational purposes only. Contact a financial advisor for additional guidance.