Many retirees end up regretting not having waited to retire later and collect a paycheck for a few more years when they are suddenly hit by unexpected costs from health issues and life events.
Had they held out a few more years, they could have seen a significant increase in the amount of Social Security income they collect and hence have more money for covering those health issues and other life events.
To get full benefits you need to start taking Social Security when you reach 67 years of age (full retirement age). You can start receiving benefits as early as 62, but you will not receive full benefits. Conversely, if you wait until you are older than 67, you will be rewarded with increased benefits.
Here’s how you will be dinged for accessing Social Security earlier than full retirement age. If you claim at:
- Age 62, your benefit will be reduced by 30%.
- Age 63, it will be reduced by 25%
- Age 64, it will be reduced by 20%
- Age 65, it will be reduced by 13.3%
- Age 66, it will be reduced by 6.7%
You will be rewarded for waiting. If you delay claiming until:
- Age 68, your benefit will increase by 8%
- Age 69, it will increase by 16%
- Age 70, it will increase by 24%
In other words, when people retire too soon and start collecting Social Security income, they give up extra money that could help them later on.
In a Harris Poll of more than 900 adults who were either retired or nearing retirement:
- 25% of retired respondents said they would have waited to start collecting Social Security if they could turn back the clock.
- Of those who did not regret waiting, almost 40% said that a life event compelled them to start collecting.
In terms of health issues, the survey found that:
- 40% of retirees had health problems that prevented them from living up to their expectations in retirement.
- 80% of respondents reported experiencing major or multiple health problems sooner than expected.
- Health care costs alone kept about 25% of the participants from living how they hoped to live during retirement.
- People who start drawing Social Security income at 62 will spend over 60% of that money on health care costs on average. Had they waited longer, the percentage would have decreased considerably and posed less of a financial hardship.
The sage advice here is: If you can muster it, hold off on collecting Social Security until you reach 70. That’s not always possible, but it can be a significant boost to your income that can help you live a more comfortable retirement.
Steps to take
If you’re concerned about your finances in retirement, don’t fret. Financial advisers, Social Security tools and other helpful additions can bridge the gap. Start by creating an account on Social Security’s website, where you will be able to get an estimate of how much you will be receiving in retirement and if you wait.
After you have a handle on what you could expect to receive from Social Security in retirement, the next step is to give us a call to get your finances set up for a comfortable retirement.
If retirees work with an adviser, they are less likely to report that health problems and costs prevent them from living their dream retirement. As the landscape continues changing for retirees, Social Security is becoming more important.
Forty percent of the Harris Poll survey’s respondents did not have a pension plan and lacked adequate savings to retire. If you work with us, we can help you reduce your risk of outliving savings and buffer your financial portfolio to allow for unexpected life events and health issues.
To learn more, give us a call.