Why Taking Social Security At 62 Might Be The Biggest Mistake You Make?
I always like to preface this advice with a caveat. If you have been working at the same job for 35, 40 or more years and you feel as if your only ticket out is to claim early then that is exactly what you should consider doing. That is assuming you really don’t have any other options. You are not willing or able or healthy enough to start a second more enjoyable career. You don’t have enough other money saved to live off of and you don’t have enough of a pension to pay the bills. If this sounds like you and you are just dreaming about the day when you can tell them to take this job and shove it then you simply have to take into account quality of life. You don’t want to work a few more years just because the retirement paycheck might be bigger if you are really just ready to end this stage of your working life. If this sounds at all like you then taking your benefits early at age 62 might just be the smartest thing you have ever done in your whole life. You have my blessing.
On the other hand this is not the situation for many of the people who find their way into my office or one of the many classes I teach on the subject at Rock Valley College or at the Library. Maybe you are fortunate enough have a significant pension, or have saved a significant amount of money in your 401 (k). Or maybe you may not have quite enough saved to live on but you don’t really plan to stop working altogether either. In fact you might even be looking forward to a second career doing something you actually enjoy. If any of these scenarios sound like you then you might want to think twice about taking your Social Security benefit too early. Most people seem to be under the false impression that it really won’t make that much of a difference but nothing could be farther from the truth. Let’s take a closer look.
|Claimant Age||Benefit Amount||% of PIA
(PIA=Primary Insurance Amount)
(Full Retirement Age)
As you can see from the chart above most people will reach full retirement age at age 66 depending on the year they were born. (It’s age 67 if you were born 1960 or later). At 66 you will get what Social Security calls 100% of your Primary insurance amount or PIA. Now this is a hypothetical example of a pretty good wage earner. Your benefits may be higher or lower depending on your work history but the math is the same. Now notice what happens at age 62. Instead of getting 100% of your PIA you only get 75%. We like to call anything prior to full retirement age the penalty zone because you will get a penalty applied to your benefit calculation. For example if you apply at age 62 you will get a 25% penalty. Every month you wait to collect you will get less of a penalty. Look what happens if you wait just two years to age 64. You get 87% of your benefit instead of 75% of it or in this example $276.00 more per month for the rest of your life. That’s not small potatoes in my book. That is significant money.
And it’s not all penalties either, if you wait beyond your full retirement age you enter into the Bonus Zone. Anyone who collects after age 66 gets what are called Delayed Retirement Credits of about 8% per year. Look at the difference between someone collecting at age 70 verses age 66. At age 70 you would get 132% of your benefit or $736 more per month. Again this is much better than a stick in the eye just for waiting. So, am I suggesting that everyone wait? No not at all. We need to take into account Life expectancy, other income available, will you be working, pension income, taxes, etc. So, no, waiting is not right for everyone but shouldn’t everyone at least fully understand how much money they are giving up before they elect to soon? Yes, I think that it is imperative and that is why I have been speaking about it at Libraries, and Colleges, and Businesses for the last 7 years. The most important thing you can do is to make sure you analyze the data before you take the plunge.
Now there are many tools online that you can use to make this analysis. Some of them are even free to use. You might check out the ones at www.ssa.gov the official website for Social Security. However, I have found in walking hundreds of people through this and other complex retirement decisions that knowing what to do can be part art and part science. It’s not just running a simple analysis it’s know what numbers to plug in and how to apply them to your situation that counts. We offer a FREE Social Security analysis and we use one of the best tools in the industry to run 537 separate computations just to discover the right claiming strategy for you and believe me it is much more complicated than most people realize and the decisions is pretty much irreversible so you better get it right the first time. Why do I run this analysis for free? Well I pay a substantial yearly fee to have access to the software and they don’t care if I run one report or 5,000 so it costs me nothing but a little time, and secondly it gives me the opportunity to meet people who might be looking for a little help making the transition from work life to retirement life. The very group that I specialize in working with.
Like I said the Social Security analysis is free and I offer it as part of my complimentary Retire Right Blueprint process.
What happens at one of these complimentary strategy sessions? My job is to help you make educated decisions about your money that feel right to you. That might include not changing anything or doing anything different if that is what feels right. My job is NOT to wrestle you into some financial product or strategy that makes you feel uncomfortable. And if at the end of our session you decided to take my advice and do it yourself or bring it back to your current advisor that is your option. We will still part friends, I promise.
Typically, we will sit down together for about an hour or so and my goal will be to answer as many questions for you as I can. During our session, we will likely uncover several ideas that could put you thousands of dollars ahead, or we will expose several big mistakes that could easily be avoided. There is NO cost for this meeting and nothing to buy at this point.
Does this sound like something that would be helpful to you? If so be sure to book your strategy session today!
Investment advisory services offered through Horter Investment Management, LLC, a SEC-Registered Investment Advisor. Horter Investment Management does not provide legal or tax advice. Investment Advisor Representatives of Horter Investment Management may only conduct business with residents of the states and jurisdictions in which they are properly registered or exempt from registration requirements. Insurance and annuity products are sold separately through Rockford Retirement Resource Center. Securities transactions for Horter Investment Management clients are placed through Trust Company of America, TD Ameritrade and Jefferson National Life Insurance Company