Feeling generally insecure about Social Security, or more specifically about when to begin claiming benefits? And what of the factors that should figure in your decision? A smart and comprehensive July article by Robert Berger on the US News and World Report website, provides valuable personal finance information on the subject. The article is excerpted in a series of blogs:
“Deciding when to claim Social Security benefits is, without a doubt, one of the most complex pieces of the entire retirement planning process. In fact, most individuals should consider hiring a professional to get advice on retirement planning in general, and Social Security benefits in particular. (At Pension Parameters, we can help you examine this decision as it relates to your retirement funds and overall financial outlook.)
Here are some basic guidelines to consider as you decide when to claim Social Security:
“Monthly payments vary a lot. You can start taking Social Security benefits at age 62, which shouldn’t be confused with age 59 1/2, at which you can take penalty-free withdrawals from tax-advantaged retirement savings accounts like IRAs and 401(k)s. But taking the benefit as soon as you can will lower your monthly payment amounts throughout retirement.
“The government attempts to even out Social Security payments over time by basing payments on the average life expectancy. If you take benefits at 62 and live until 77, you’ll get about the same amount of money as if you took benefits at 70 and lived until 77. If you live longer than average, though, your total benefits can vary dramatically depending on when you start taking them.
“Figuring out exactly how much you can get per month from Social Security is the easy part. The official Social Security Administration retirement estimator can tell you about how much you can expect to get based on your actual earnings. The nearer you are to retirement, the more accurate this calculator will be, and it can show you your retirement earnings based on different scenarios. For example, a person who could get $750 a month at age 62 could get $1,000 a month at 66 or $1,320 a month at 70.
“It depends, in part, on your retirement savings. When deciding when to claim Social Security, you’ll want to factor in your retirement savings, either in the form of pensions, tax-advantaged accounts or other investments. In some cases, it’s better to withdraw from your retirement savings while delaying Social Security. In other cases, it makes more sense to draw on Social Security first, while leaving your retirement savings largely alone until you’re older.
“Keep in mind that many of your retirement accounts, including the 401(k) and traditional IRA, will be subject to required minimum distributions. So you’ll have to withdraw at least some of the money by the time you’re 70 1/2.
“Those who have enough investments to cover their expenses in early retirement so they can delay taking Social Security are better off waiting to draw on Social Security, according to calculations by the Schwab Center for Financial Research. On the flip side, Social Security alone may not be enough for you to cover your expenses later in life, so you don’t want to set yourself up to run out of the money you’ve saved, either.”
To be continued.