New York Estate Planning & Elder Law Blog
One of the most important decisions when contemplating retirement is deciding when to start claiming Social Security benefits. A major study found that almost all Americans take Social Security at the wrong time. This timing problem has cost retirees about $111,000 per household. Retirees typically claim Social Security benefits at 63, the earliest age a person may claim Social Security benefits is 62. Every year they wait to start drawing benefits means a larger Social Security payout. Their recommendation: start drawing Social Security benefits later in your retirement.
Among the Report’s main findings are:
- Only 4% of retirees claim Social Security at the most financially optimal time.
- The remaining 96% of retirees are losing out on $3.4 trillion, or about $111,000 per household.
- Americans can claim Social Security as early as age 62, but the benefit grows each year they wait, maxing out at age 70.
- Factors to consider when drawing out benefits are complex and should be based on health, savings, and marital status of retirees.
Social Security program benefits are voluminous and complex
The government issued Social Security Handbook contains over 2,700 entries on topics – ranging from net earnings on self-employment income to special veterans benefits. Understanding how the program benefits your individual and family needs will require research. For example, many retirees don’t understand how many years of work their Social Security benefits are based on, for instance. The federal Government Accountability Office, the AARP and the Financial Literacy Center all recommend stepping up your education game by asking questions and researching the ins and outs of Social Security.
Savings supplement Social Security benefits
Individuals in retirement need to be able to afford their necessities – food, housing, and clothing – and be able to maintain their lifestyle – recreational activities, traveling, dining, and other amenities. Social Security benefits will only be able to cover some of those expenses, gaps are covered through savings, a side-job, or pension and other retirement benefits.
Impact of health on finances
A major drain to any budget is a chronic health condition. Each year the costs of medical care, treatment, and prescriptions in particular go up. Medicare covers many services but very few medical services are covered at 100% of the cost. Supplemental health insurance and Medicaid assist with rising costs for medical care and fitness. Try to get in front of any chronic illness, delaying the worst of its symptoms. Preventative care saves money and more importantly makes you feel better.
Wait to retire
The Report’s authors and many financial planners advise people to retire later. For best results they recommend you begin drawing on social security benefits when you are 70 years old. This is easier said than done, especially since many more retirees are entering retirement with limited savings.