Yahoo Finance Suze Orman: How To Decide When To Claim Social Security
Figuring out when to claim Social Security can be tricky. Should you collect as soon as you hit 62? Wait until the retirement age of 66?Or should you delay until 70 to maximize benefits? While there is no one-size-fits-all answer, it’s important to think critically about when you will begin claiming your Social Security benefit.
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Money expert Suze Orman offered some helpful advice for navigating this decision.
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Understand What’s at Stake
Before deciding when you will claim your benefit, it’s important to understand what claiming earlier versus later means for the amount you will receive.
“Every month past age 62 you don’t claim your benefit entitles you to a slightly larger payout when you do start collecting your benefit,” Orman wrote in a recent blog post. “Over time, those small incremental increases add up.
“At your full retirement age (67 for everyone born in 1960 or later) your benefit will be 30% larger than if you start at age 62,” she continued. “Moreover, if you wait all the way until you turn 70, your benefit will be 76% higher than if you start at age 62.”
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Women in Particular Should Consider Delaying Benefits
While you can’t predict your lifespan, Orman notes that women tend to live long lives and should consider maximizing their Social Security benefits, if possible.
“A woman who makes it to age 65 in average health has a 50% probability of still being alive at age 88,” Orman wrote. “That’s an argument for waiting if you expect to rely on Social Security for a lot of your retirement income.”
Delay Benefits If You Still Have Other Sources of Income
If you still have income at age 62, Orman advises waiting to collect Social Security.
“There are many people who have other income sources at age 62 — they continue to work or they could tap retirement savings — who are still insistent on claiming at the earliest possible age, effectively accepting a lower payout than if they waited,” Orman wrote. “There seems to be a sense of ‘ownership’ at play.”
Another reason people collect early is fear of losing out on income if they die early or unexpectedly.
She wrote, “The thinking is, ‘Hey, I worked hard and paid into the program and I am not going to wait and run the risk of dying before I collect what I earned.’ Another dynamic that can make it hard to wait is that we all tend to be motivated to not lose and will make suboptimal financial decisions simply because we want to avoid the sharp emotional pain of feeling like we lost something.”
“In terms of Social Security, this ‘loss aversion’ might be what compels people who would financially benefit from waiting to start collecting to instead start at 62 or some point before their full retirement age,” she continued. “That is, people take the lower benefit at age 62 because they don’t want to ‘lose out’ if they die before starting to collect their benefit.”
Despite these feelings, Orman encourages waiting for a higher benefit.
“I get it,” she wrote. “Yet I am never going to stop pushing each of you to remain open to the value of waiting to claim your Social Security benefit if you are not dealing with a life-shortening illness. From a financial standpoint if you live a long life, waiting as long as possible to start collecting Social Security will pay off with higher lifetime benefits.”
Why You Might Claim at Age 62
Certain circumstances make it logical to claim benefits as soon as you’re eligible.
“If you need the income at 62, you are going to claim,” Orman wrote. “Or if you arrive at age 62 in poor health, claiming your benefit early may make sense.”
The Importance of Planning Ahead
Whatever you decide about the timing of your Social Security, it’s best to start thinking about this as early as possible.
“This is not a decision you can just shelve until you are 61,” Orman wrote. “If you haven’t made plans to delay claiming your Social Security at that point, chances are you will just go ahead and start at 62. It takes planning to be able to delay starting to collect your benefit. Maybe working a bit longer, at least part-time. Or maybe starting to tap some of your retirement savings rather than collecting Social Security early.”
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This article originally appeared on GOBankingRates.com: Suze Orman: How To Decide When To Claim Social Security
