Senior couple meeting up with a financial advisor

Pro Series: Why you need to plan ahead for Social Security

Retirement, or the way it is portrayed in popular culture, looks great! Retirees have more time to travel, volunteer, take up new hobbies or simply relax with their newfound freedom.

With those images dancing in our heads, why wouldn’t anyone want to start retirement as early as possible?

These days, more than one third of Americans start collecting Social Security retirement benefits after they turn 62.1 That may sound good on the surface but claiming early benefits can have long-term financial consequences that could cost you money.

Understanding reduced benefits

Retirees who claim early benefits at age 62 only receive 75% of the benefits they receive if they had waited until full retirement age – now 66.2 Waiting until age 70 would push the benefit higher and would be 76% more than the benefit they would claim at 62.2

Also read: What is an annuity anyway? How can an annuity help me prepare for retirement?

In other words, someone who could receive an annual Social Security payment of $30,000 by waiting until age 70, would receive only $23,000 a year at full retirement age and $17,000 a year at age 62. These are significant differences that can affect your financial well being.

What’s the right age?

People are living longer and are likely to have significant expenses well into their retirement years. Reducing your benefits by accepting early Social Security could have repercussions for years amounting to hundreds of thousands of dollars.

Not only could this affect you as a married couple, but this could also affect a surviving spouse who would experience income shortfalls due to the lower benefits.

So what is the right age to start collecting Social Security benefits?

It’s not easy to determine. Many people claim early benefits because they don’t necessarily realize there are losses associated with not waiting a few extra years. But everyone’s situation is different.

Also read: Pro Series: What is asset allocation and how does it work?

Retirees who are in need of money for health expenses, for example, may in fact want to take early benefits to help offset these costs. However, others who are in good health and expect to live well beyond their retirement year will want to consider holding off for the larger Social Security monthly benefit.

It’s also important to consider your work situation. Not everyone wants to eliminate work entirely. But people who work into and beyond retirement will lose benefits because they will be reduced by $1 for every $2 you earn over $15,480.3

Once you reach full retirement age there is no penalty for working.3

What if you’re married?

Married couples have difficult decisions to make when it comes to claiming Social Security. Do I want to claim a spousal benefit or claim my own benefit based on my work history?

Do I think I will live a long time and rely on Social Security as my main source of income? What option should I use to maximize my benefit?

These are the types of questions married couples will have to consider when planning their Social Security.

A spousal benefit, for example, allows wives or husbands to claim a Social Security retirement benefit that’s equal to 50% of their spouse’s full retirement age benefit if they wait to claim it until they reach their own full retirement age.

The spousal benefit will be reduced if they claim before full retirement age.

There are other considerations as well. Things such as “file and suspend” allow the spouse with the larger benefit to file at full retirement age so that their spouse can start claiming spousal benefits.

But the spouse that filed can then suspend or delay until reaching the age of 70 in order to maximize the larger monthly retirement benefits.

Next steps

The need to plan your Social Security should not be taken lightly. The benefits you receive could affect your long-term financial security.

At Foresters Financial, our financial representatives use sophisticated tools and calculators that guide our clients through key factors that can help them determine the right age and strategy to begin collecting Social Security.

Discussing your needs with an advisor can help you choose the right time and age to start collecting benefits.

Also read: Pro Series: Understanding the different types of investment risk

1. Government Accountability Office, Retirement Security: Challenges for Those Claiming Social Security Benefits Early and New Health Options, April 2014

2., When to Start Receiving Retirement Benefits, 2014

3., How Work Affects Your Benefits, 2014

The information contained herein is not intended as a recommendation of a specific security or investment strategy. Rather, it is intended to be general and informational in nature. Speak with your Representative to discuss your specific situation and financial goals.

Neither Foresters Financial nor its affiliates provide legal, tax or estate planning services. Should you require such services, you should consult a legal, tax or estate planning professional.

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Joel Kranc

Joel Kranc is director of Kranc Communications, a full-scale content and marketing solutions firm founded in 2011 serving a global financial services clientele. He is author of the best selling book Retirement Planning in 8 Easy Steps: The Brief Guide to Lifelong Financial Freedom. He can be reached at