What Are the Pros and Cons of Waiting to File for Social Security Until You Hit 67?
Most people want to take advantage of all options available to them in order to have the most comfortable retirement. So, what does that mean for you? One decision you will need to make is when to begin receiving your Social Security benefits.
The average American draws nearly $1,300 per month in Social Security. As you approach retirement age, you should have some idea of what yours will be so you can make a decision. You can begin collecting that money before you reach full retirement age (FRA) at 67 (assuming you are born in 1960 or later). But there can be tradeoffs.
You may have heard that you may receive lower benefits if you delay drawing on your retirement until a few years after you stop working. Other sources may claim that it will make no difference. So what is the right answer?
First, let’s look at what is known.
What Happens If I Stop Working and Don’t Draw Social Security for Several Years?
How much you get in Social Security is based on your average salary for the highest 35 years of salary during your lifetime. That remains the same no matter when you finish working.
Here’s where it gets tricky. Technically, you won’t earn any less money if you stop working when you are 63 vs. 67, which is FRA. But you may miss out on a chance to get more money. Some people earn more in their last few years of work than they did earlier.
Theoretically, if you get a raise every year from when you’re 63 to 67, you could bump out several years of lower earnings from your 35-year history and receive a higher payout based on your higher career average.
But it doesn’t work this way for everyone. Some people have semi-retired by the time they hit their 60s. They may be working part time or have agreed to a lower salary with fewer hours. The lower salary could decrease your 35-year average if you have fewer working years.
If you decide not to wait until you reach FRA to access your benefits, they could also be reduced for age based on your primary insurance amount (PIA). It will decrease by about half a percentage point for the first 36 months, then go down slightly for each reduction month that’s more than 36 months.
Pros and Cons of Taking Early Retirement Benefits
Now that you know what is at stake, here are some pros and cons to consider:
· Pro: You can pay for things that you may need now, including health care.
· Con: If you take your retirement early, your heirs will receive less of a payout.
· Pro: You can stop working earlier if that is something you want to do.
· Con: If you are sick or worry about getting ill, you shouldn’t wait to claim your benefits.
The right answer is often different for different people. Want to determine what is right for you? Contact Jay to discuss your options and see which one would work the best.