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3 Important Considerations

The decision of when to begin receiving Social Security benefits can significantly impact your long-term retirement income, yet there’s no standard formula for determining the right approach. The optimal age varies based on a wide range of factors and should be made in light of your specific goals and retirement vision. As you’re weighing your options, it’s important to consider the following.

#1 – How timing impacts your monthly benefit amount

As you’re considering the timing of your Social Security benefits, it’s important to be aware of how your age may impact your monthly benefit amount. There are three primary age thresholds that can influence your retirement benefit:

• Age 62: Early retirement – Claiming at age 62 may reduce your monthly benefit by up to 30%.
• Age 67: Full retirement age (FRA) – For those born in 1960 or later, claiming Social Security at age 67 allows you to receive your full monthly benefit amount.
• Age 68-70: Post-FRA – You may be eligible for an additional 8% in benefits for each year after age 67 and until age 70 you delay taking benefits. For example, if you delay benefits until age 70, you would receive a 24% increase in your monthly benefit amount (8% per year for three years).

If you’re considering filing for early retirement benefits, it’s important to be aware of the following.

• The closer you are to FRA when you file, the greater your monthly benefit amount will be. It often pays to wait.
• Early retirement makes sense in certain situations, especially if you need the additional income to make ends meet. Your decision should be based on your own goals and retirement income needs.
• Any benefit reductions due to early filing are permanent. While you may be eligible for periodic cost-of-living adjustments, your monthly benefit will always be less than it would have been at FRA.

#2 – The value of your portfolio

Another important consideration is how the timing of Social Security may impact the value of your portfolio. For example, if you retire at age 62 but don’t start drawing Social Security benefits until age 67, you will need to rely solely on your retirement savings to support your lifestyle for the first five years of retirement. This can have a major impact on your portfolio’s value later in life since you are withdrawing not only assets, but also their long-term growth potential.

This can become especially problematic if you experience a market drop in those first five years. If the value of your shares drops, you may need to sell more shares in order to obtain the assets necessary to support your lifestyle. In addition to selling shares at a loss, you are also removing those shares from the market, which means they are not able to benefit from a future market recovery. This can be a devastating loss that is impossible to recover from.

In this situation, it may make sense to begin taking Social Security at an earlier age in order to maximize your portfolio’s continued growth throughout retirement.

#3 – Life expectancy

Life expectancy is an important consideration to keep in mind as you decide when to begin taking Social Security. If you suffer from chronic disease or have a family history of health issues, it may make sense to begin receiving Social Security earlier than later, even if your monthly benefit amount is less. On the other hand, if you are healthy and anticipate a long lifespan, it may make sense to delay filing in order to optimize your monthly payments.

#4 – Marital status

The decision of when to begin taking benefits may be impacted by your marital status.

Married couples

Social Security benefits are available to both spouses in a marriage, even if only one was the primary earner. Each spouse may receive benefits based on his or her earnings, or up to 50% of the working-spouse’s earnings, whichever amount is greater. The government will compare your individual benefits to your spousal benefits and pay the higher amount.

In order to qualify for spousal benefits, you must be at least 62 years old.

Divorced couples

In cases of divorce where one spouse was the primary earner, the non-working spouse may be eligible for spousal benefits based on the working spouse’s earnings. A Social Security spousal benefit may provide as much as 50% of the working spouse’s benefit once the non-working spouse reaches FRA. However, there are some conditions you must meet in order to qualify for spousal benefits.

• You were previously married to your ex-spouse for at least 10 years.
• You have been divorced from your ex-spouse for at least two years.
• You are not currently married.
• Your ex-spouse is age 62 or older
• You are eligible to receive Social Security benefits.
• The benefit amount you are eligible for based on your own earnings is less than the potential spousal benefit based on your ex-spouse’s earnings.
• Your ex-spouse has begun taking Social Security benefits.

It’s important to note that filing for spousal benefits does not impact your ex-spouse’s benefit eligibility or monthly payment amount.

Widows/widowers

If your spouse has passed away, you may be eligible for up to 100% of his or her benefits once you reach full retirement age. Referred to as survivor benefits, the monthly payout will be reduced if you begin taking benefits prior to FRA.

If you are divorced and your ex-spouse passes away, you may be eligible for spousal benefits if you meet the following criteria.

• You were previously married to your ex-spouse for at least 10 years.
• You are not remarried.
• Your ex-spouse was at least 62 when he/she passed away.

Could you use some help determining the right timing of your Social Security benefits? North Oaks Wealth Management is here to help. We support clients in building strong financial futures, one brick at a time. Schedule a call to learn more.