If you’re nearing retirement, you probably know that you can begin receiving Social Security benefits at age 62.
Sounds great, right? But there’s a catch.
If you begin receiving Social Security at age 62, your starting benefits will be 25% to 30% less than if you wait until your full retirement age (66 or 67, depending on when you were born). If you wait even longer than that, your benefits will increase 8% each year until you are 70. That’s why delaying the start of your Social Security benefits may make sense, even if you intend to retire early. Calculator: How much Social Security income will you receive?
Your benefits may also increase over time through annual cost-of-living adjustments, or “COLAs.” These adjustments are determined annually by the Social Security Administration to help recipients maintain their standard of living in retirement. (However, COLAs are not guaranteed and may not always keep up with the actual rate of inflation.)
So, delaying Social Security to maximize your benefits may sound appealing, but how will you enjoy your retirement lifestyle if you aren’t receiving benefits during those eight years of delay? Here’s a strategy that might help you maximize your Social Security benefits and combat potential inflation.
If you begin receiving Social Security at age 62, your starting benefits will be 25% to 30% less than if you wait until your full retirement age.
Assuming you have adequate funds, purchasing a single-premium immediate annuity (SPIA) that pays a series of income payments over a specific time period could help replicate the Social Security benefits you would have received between ages 62 and 70. This income can help you enjoy your retirement to the fullest in your 60s. When SPIA payments end and you begin taking Social Security payments, you’ll have larger Social Security benefits waiting for you.
However, delaying Social Security benefits may not be appropriate for everyone. Factors to consider include your health and expected longevity, potential inflation and its effect on the value of future income, your financial situation and marital status, and your ability to afford a SPIA. SPIAs are generally irrevocable and not considered liquid.
Work with your financial professional or insurance producer and use the tools and calculators available on the Social Security website to help you make an informed decision on when to begin collecting Social Security benefits.