Top
Retirement
Mistakes
By: Don Burrows, Jr. Hilltop Securities, Inc. don. Burrows @ hilltopsecurities. com
Retirement Mistake # 4 Taking Social Security Benefits Too Early
Taking Social Security benefits too early can be a major mistake for many people. First, they don’ t realize how much more money they can receive by waiting until they are 66 or 70. They don’ t take into consideration, for example, if they have money in an IRA or a 401K, let ' s call it taxable money, it can hold them over without depleting all of their resources. They can wait until age 70 as opposed to age 62. Social Security benefits increase by approximately 7 percent each year you delay taking it from age 62 to 66, and by 8 percent a year until age 70. Basically, you can look at it as a guaranteed return that you probably wouldn’ t get in the market.
According to the Nationwide Retirement Institute, only 15 percent of us elect to wait to full retirement age( 66) to take benefits, and just 10 percent start taking Social Security after age 70. Of course, when life expectancies were in the mid-70s, it made sense to take benefits early. But now people are living in to their 90s. If you live to be 100 and you claimed your benefits at 62 instead of 70, you lost a lot of money!!
The full retirement age is 67 if you were born in 1960 or later, and workers in that demographic who took Social Security at age 62 would lose 30 percent of their full retirement-age benefit. All told, more than half of Americans start collecting Social Security at 62-- and four out of five women. The " wait to take " is especially important, given increasingly extended lifespans. Women who reach 65 are expected to live to 86, according to government tables, and 25 percent will live past 90. Men who reach 65 can expect to live to 83. The National Retirement Institute reports that women who take Social Security benefits early average a payout of $ 1,025 per month. But by waiting until full retirement age, that payout rises to $ 1,270. And if a woman waits to age 70( with at least 16 years of life expectancy left, presumably), that payout rises to $ 1,630.
The various options for the claiming of Social Security benefits can be very confusing. Even for those who are fairly educated about the system. It is especially confusing for those who have no experience and no knowledge and are depending on their benefits to maintain their lifestyle in retirement. Here is a story about a client who is a widow and who our team helped through the Social Security maze:
Our client worked as a customer service rep for JC Penney during the early part of her career, and for the past 8 years she has been working at Walmart in the housewares department. Her husband, who also worked for JC Penney, passed away recently. He didn’ t have much money, but they both did a good job of saving as much as they could. She came to us to aggregate all of her assets which were still at all the former employers and different funds. She told us she wanted to collect her Social Security benefits at age 62. However, after discussing this with her, we discovered she didn ' t know anything about the option of receiving spousal Social Security benefits from her deceased husband, which interested her.
We wanted to confirm the information about the spousal benefits and the process of collecting them, so we went to the Social Security office with her. It took us about two hours to receive complete and accurate information. In fact, we still needed additional information, so we asked for a senior person to explain more of the details to us. Our client liked that option. As it turned out, by our client claiming spousal benefits, she is receiving about $ 1200 more than she would have if she had claimed her own benefits. We were all happy that she was able to collect more money for her retirement. We especially enjoy going the extra mile for clients to give them a financial edge.
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