Hi, I’m Elisabeth Dawson, and I’ve been a financial advisor for over 26 years. As the founder of COPIA Wealth Management & Insurance Services and COPIA Wealth Management Advisors Inc., I’ve worked with countless individuals and families to help them navigate their financial futures. One of the most important decisions you’ll make as you approach retirement is when to claim your Social Security benefits.
This decision isn’t just about adding another stream of income to your retirement—it’s about helping to ensure your long-term financial health. Social Security is a government-backed, inflation-adjusted safety net, but how and when you claim it can significantly impact your financial well-being. Let’s take a closer look at the key factors you need to consider to make the best decision for your personal circumstances.
What Makes Social Security So Important?
Social Security is one of the most stable sources of retirement income. Unlike other investments that are subject to market fluctuations, Social Security benefits adjust for inflation. This means that your benefits increase in response to rising costs of living, helping to cover expenses like healthcare, food, and other necessities as you age.
One of the key features of Social Security is its flexibility. You can claim your benefits as early as age 62 or delay them until age 70. However, the timing of your claim can dramatically affect the amount you receive. If you claim early, your monthly benefits will be reduced. But if you wait until age 70, your benefits increase substantially. Balancing your immediate needs with the long-term advantages of waiting is one of the biggest challenges retirees face.
Factors to Consider When Deciding to Claim Social Security
Over the years, I’ve helped many clients make this decision, and I’ve found that it often comes down to a few important factors. Here’s what I encourage you to consider:
1. Longevity Expectations
How long you live obviously impacts the amount of money you’ll need in retirement. Obviously no one knows for certain, but consider your current health, lifestyle, and family history. If you expect to live a long and healthy life, delaying your Social Security benefits could be a smart move. For every year you delay past your full retirement age, your benefits increase by about 8% per year until you reach age 70. However, if your health is a concern or if your family has a history of shorter life spans, claiming earlier might be more beneficial.
2. Financial Needs
Everyone’s financial situation is different, and your immediate needs are an important part of the equation. If you need income to cover your living expenses now, it might make sense to claim your benefits as soon as you’re eligible. But if you’ve saved enough to cover your current expenses, waiting to claim Social Security can lead to a much larger monthly benefit down the road.
3. Employment Status
If you plan to continue working while receiving Social Security, this can affect your benefits. If you claim before your full retirement age and your earnings exceed a certain threshold, your benefits may be temporarily reduced. Once you reach full retirement age, however, you can work without any impact on your Social Security benefits.
4. Marital Status and Spousal Benefits
Social Security isn’t just about you—it can also affect your spouse. If you’re married, your spouse may be eligible for spousal benefits, which can be up to 50% of your benefit. In some cases, delaying your claim can boost not only your benefit but also your spouse’s. This is especially important if your spouse has a lower income or no income of their own. If you’re divorced but were married for at least 10 years, you may also be eligible for benefits based on your ex-spouse’s earnings.
5. Inflation Protection
One advantage of Social Security is its built-in inflation protection. The cost-of-living adjustment (COLA) ensures that your benefits keep pace with inflation over time. By waiting to claim, you can increase your base benefit, which means future COLA increases will be based on a higher amount.
6. Tax Implications
It’s important to know that your Social Security benefits might be taxable, depending on your overall income. Up to 85% of your benefits could be subject to federal income taxes, especially if you’re also drawing income from other sources like a pension or 401(k). I always recommend working with an expierenced financial professional to understand how taxes might affect your benefits.
How Waiting Can Increase Your Benefits
Now, let’s talk about the real benefits of waiting. Every year you delay claiming Social Security past your full retirement age, your benefits increase by about 8%. If you wait until age 70, your benefit could be as much as 32% higher than if you claimed at your full retirement age.
For many of my clients, this additional income can be a game-changer. It provides a cushion for the later years of retirement when you might have fewer income sources. However, if you claim early—say at age 62—your benefits will be permanently reduced by up to 30%. This decision ultimately comes down to balancing your current needs with your future financial security. I can help you navigate this difficult decision.
Making an Informed Decision
As I always tell my clients, “An informed decision is a wise decision.” Deciding when to claim Social Security can feel overwhelming, but it doesn’t have to be. Here are a few steps I recommend:
Conduct a Break-Even Analysis
A break-even analysis helps you compare the financial impact of claiming early versus waiting. It calculates how long you would need to live for the higher benefits from waiting to make up for the years of missed payments. While this is a useful tool, it’s just one part of the decision-making process. You should also factor in your health and longevity expectations.
Seek Professional Advice
You don’t have to make this decision on your own. As a financial advisor, I always encourage my clients to consult with a professional who can help them integrate Social Security into their broader retirement strategy. It’s not just about maximizing your benefits—it’s about ensuring your entire financial picture is sustainable for the long term.
Consider Your Total Retirement Picture
It’s important to remember that Social Security is just one piece of your retirement income puzzle. Consider how it fits with your other sources of income, like pensions, 401(k)s, IRAs, and investment accounts. By taking a holistic approach, you can make a more informed decision about when to claim your Social Security benefits.
Social Security FAQs
1. What is the earliest age I can claim Social Security?
You can claim Social Security benefits starting at age 62, but your monthly payment will be permanently reduced.
2. How much do Social Security benefits increase if I delay claiming?
If you delay claiming past your full retirement age, your benefits will increase by about 8% per year, up to age 70.
3. Can I work and claim Social Security benefits at the same time?
Yes, but if you claim before your full retirement age and earn more than a certain amount, part of your benefits may be withheld.
4. Are Social Security benefits taxed?
Yes, depending on your total income, up to 85% of your Social Security benefits may be subject to federal taxes.
5. What happens to my spouse’s benefits if I delay claiming?
Delaying your benefits may increase your spouse’s benefits, particularly if they are eligible for spousal benefits based on your earnings.
The Right Time to Start Social Security
The decision of when to claim Social Security is one of the most important financial choices you’ll make in retirement. As someone who has guided thousands of people through this process, I can tell you that there’s no one-size-fits-all answer. You need to consider your health, financial needs, and overall retirement strategy. Take your time, weigh your options, and make the decision that will provide you with the most security and peace of mind for the long term.
Are you unsure about the best time to claim your Social Security benefits?
Don’t let uncertainty jeopardize your retirement plans. At COPIA Wealth Management & Insurance Services, I’m here to help you make informed decisions that align with your health, financial needs, and long-term retirement goals.
Let’s work together to create a personalized strategy that gives you the financial security and peace of mind you deserve.
Schedule your FREE consultation or call us at 619.640.2622 today and take the first step toward a confident retirement.
