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Introducing the Social Security Claiming Decision

For the vast majority of Americans, Social Security benefits serve as the core of a retirement income strategy. As a government-backed, inflation-adjusted monthly income for life, Social Security benefits help to manage longevity risk, inflation risk, and market risk. But we all have a decision that we will need to make. We’ll need to decide when we will start taking these benefits. And what we decide will have serious ramifications for what our retirement will look like.

In 2023, the Social Security Administration reported that the average monthly Social Security retirement benefit was $1,827 per month, or $21,924 per year.

Individuals with above average lifetime earnings will be entitled to even larger benefits. However, the average benefit is significantly less than what is possible, as most Americans claim benefits early. In fact, based on the 2022 Annual Statistical Supplement to the Social Security Bulletin, more than 75% of beneficiaries claimed their benefits before their Full Retirement Age, and 29% of beneficiaries claimed their benefits at age 62 (on the plus side, this is down from slightly more than 50% in 2011.)

Social Security Benefits are Beneficial

Social Security’s online calculator shows that if you are 66 today (the full retirement age) and already retired, you’ve earned the maximum taxable earnings over your career, and you’ll delay benefits until age 70, you will be entitled to $4,730 per month in today’s dollars, or $56,760 per year.

To the extent that wages will grow faster than prices, current Social Security legislation supports increased benefits for wage earners born at later dates. And it is also important to remember that benefits will grow with inflation throughout retirement.

Your Social Security benefits are a significant retirement asset, likely worth more than $1 million of lifetime benefits for many readers. The present value of Social Security benefits at retirement, which can total hundreds of thousands or even millions of dollars, joins home equity as the two largest assets available for most American retirees, easily dwarfing the value of their investment portfolios.

Get Everything You Can From Social Security

For many lower- and middle-income Americans, Social Security may end up providing the vast majority of retirement income. The Center for Retirement Research at Boston College notes an interesting statistic that Social Security provides 70% of the income for 70% of households aged 80 or over.

While the relative importance of Social Security may be lower for higher lifetime earners and savers, these benefits still form the foundation of most retirement plans. Social Security benefits are one of the few sources of inflation adjusted reliable income. It is crucial that you make sure you get as much from your Social Security benefits as possible. In fact, depending on your situation, making the optimal Social Security claiming decisions could end up supporting more than $100,000 of additional retirement income, relative to less effective claiming choices.

The Social Security claiming decision is something you should make an independently from when you decide to quit working and retire. Claiming decisions should not be taken lightly. You may get more from Social Security than another retiree simply by knowing how the system works.

Case workers at Social Security offices may not know about, or be allowed to provide advice about sophisticated claiming strategies, as they generally assume that the reason for visiting them is because you want your benefits to start sooner rather than later.

Social Security claiming strategies involve deciding when to claim retirement benefits. Those benefits can be claimed starting at age 62, and additional credits are available if you delay your benefits up until age 70.

There is no reward provided for delaying beyond age 70. For a single person, the claiming decision is a matter of picking the start date for benefits. The decision is more complicated for couples, though, as each of you must consider when to claim your own benefit, when to claim your spousal benefit, and when your spouse should claim their spousal benefit.

Every situation is different, and while there are situations where claiming your benefits early can result in a higher level of lifetime benefits, but it is often effective to delay your benefits to take advantage of the higher monthly benefits. Whatever decision you make about when to claim your Social Security benefits needs to take into account the totality of your situation, including potential survivor benefits, potential benefits for dependents, and even sequence of returns risk.

Making an appropriate decision about your Social Security benefits will allow you to improve your financial situation and allow you a more secure retirement. It is worth the time to understand the decision you are making.

To find out more about creating a retirement plan that works for you, read our eBook 6 Steps to Creating Your Retirement Plan.

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