As you approach retirement, you begin receiving benefit statements again (remember when we all used to get those every year?) from the Social Security Administration. One of the biggest misconceptions I’ve come across as a financial advisor is that many people believe they have to wait until Social Security’s Full Retirement Age (FRA) to retire and collect their benefits. The Full Retirement Age was increased to 67 in 1983 in a move to improve the solvency of the Social Security Trust Fund, so your benefit at age 67 will be listed along with a few other ages. But we all still have the ability to file for benefits anytime between age 62 and age 70. In fact, FRA is ONLY meaningful if you plan to work and have earned income in retirement.
So what should you do? You should plan! The best part about doing retirement planning is looking at different What If? scenarios. There are a lot of factors that go into determining when you should file for your benefits, but the single biggest one is when you retire. Yes, you get 8% more for each year that you wait, but guess where the breakeven is? Drum roll please…LIFE EXPECTANCY.
It’s more complicated than that – there are a variety of different assumptions and discount factors you have to take into account, as well as spousal benefits, survivor benefits and longevity. I love evaluating the impact of different choices for clients – when do you retire, when do you file for benefits, when do you draw pensions, when do you withdraw from which type of account? Very few people approach retirement with one and only option locked in, so I believe this scenario planning is the most valuable part of retirement planning. With proper planning, we can tackle the variables and help you feel confident in your Social Security choices!
Financial Advisor