New York Estate Planning & Elder Law Blog
Figuring out the best time to claim Social Security benefits is an important part of retirement planning that can have long lasting impacts on the type of lifestyle individuals and their spouses can expect to enjoy in their Gold Years. Depending on when individuals decide to take their Social Security benefits, from the ages of 62 to 67, it can mean the difference of hundreds of dollars per month to thousands of dollars of the course of a lifetime.
While the conventional wisdom is to wait as long as possible to claim benefits, and hopefully reach maximum payouts, for many beneficiaries there comes a time known as the “break even point” when the amount of benefits claimed would be essentially the same regardless of the amount received per month. This happens because the program is designed to give individuals more or less the same payout over their projected lifetimes, known as “actuarial neutrality.”
Determining one’s break even point is a fairly straightforward process but should take into account certain other factors that may artificially inflate any projected payout, namely excluding cost of living adjustments. Including projected cost of living adjustments will only create artificially high numbers that may not end up being actual benefits received.
To begin, it is important to understand that Social Security benefits are calculated based on an individual’s highest 35-years of earnings or, if less than 35-years, based on how ever many years worked. When an individual qualifies for Security the earliest he or she can retire is 62, giving the lowest payments.
For example, if someone received $750 by retiring at 62, that individual would receive $45,000 in benefits by the time he or she turned 66, $81,000 at 70, and $126,000 at 75. If, on the other hand that same person waits until 66 to claim Social Security benefits those payments would amount to $60,000 at age 70 and $120,000 at age 75. In this case, the persona’s break even point would be about 75-years old.
Another important consideration to take into account is how the age someone retires may affect the benefits their spouse would receive after passing away if the surviving spouse plans to use the deceased’s work record. In this situation, it is perhaps better not to guess at whether benefits will be enough to cover living expenses and instead sit down and