Choosing when to claim Social Security is a major financial decision that will affect your finances for the rest of your life. So when is the best time to start collecting for the best benefits? Is not it?
The simple answer is to wait until age 70 to apply for Social Security.
The long answer is that claiming as soon as possible at age 62 and investing that money may outweigh the returns you get from waiting for a bigger payout, according to new research published in the Journal of Financial Planning. is low.
“Before research, someone would say, ‘Invest in Social Security benefits and earn 10% a year instead of delaying it.’ As if that were the answer. % It’s not an investment and you’re not promised a return,” says Wade Fow, professor of retirement income at the American College of Financial Services and author of the Retirement Planning Guidebook.
“Waiting as long as possible generally yields better results than investing,” says Pfau.
The study reconfirmed what study co-author Pfau had suspected. That means he’s best to wait until age 70 to claim Social Security, if possible, if he wants to leave more of an estate or “legacy” to his family and get a better return. .
“If claimants don’t expect to deplete their entire investment portfolio over their lifetime, which claim strategy will ultimately leave them with more fortune?” we asked a study in the Journal of Financial Planning.
To delay Social Security claims, spend your savings in your 60s to wait for Social Security payments and receive more payments. That makes more sense than taking Social Security early, the study found.
Proponents of getting Social Security early suggest that financial advisors can invest their profits and get higher returns for their clients in the long run. But Pfau warned that it’s neither common nor likely.
“Early claims can lead to better results, but it’s not common and should not be expected,” the study said. there is.”
“Generating the returns needed to beat the benefits of delaying Social Security requires a high tolerance for risk and aggressive asset allocation, not to mention a lot of discretionary wealth,” the study said. said.
Other fans who prefer to claim their benefits early worry that the Social Security Trust Fund will be depleted and there will be no more funds available when it’s time to start collecting. , is expected to be exhausted around 2034.
“Although underfunding of the current Social Security system remains an important consideration, much literature suggests that there are better planning strategies than claiming Social Security as soon as possible in order to obtain benefits before Social Security runs out. We agree,” said the study. .
Arguments for early claiming also include reasons such as people in need of money and loss of benefits due to premature death. Of course, if you have medical reasons or don’t have alternative funds, claiming Social Security early may be your best option.
According to AARP, a person born on January 1, 1961 with an average annual income of $50,000 would make $1,386 a month if they applied for Social Security at age 62, or $1,980 at “full retirement age” at age 67 or $2,455. You will receive dollars. 70 years old.
“Deferring Social Security can be framed as longevity insurance to help offset the rising costs of living longer. Monthly benefits are 77% greater in the inflation-adjusted period for those who claim at age 70 instead of age 62,” the study said.
But according to the Social Security Administration, only 5% of men and 7% of women wait until age 70. More than a quarter of men and just under a third of women receive Social Security as soon as they become eligible for Social Security at age 62.
“Really, waiting is the key,” said Pfau.