More retirees are making this smart Social Security move — are you?
During the 12-month period ending in September, there was a significant increase in the number of people between the ages of 65 and 69 retiring, with about 5% more people leaving the workforce than in previous years.
While more seniors retired than in the past, fewer actually claimed Social Security. In fact, there was a 5% drop in the number of applications to enter retirement benefits. This was the largest drop in new benefit claimants in nearly two decades.
The Washington Post, which analyzed this data, points out that there is likely a simple reason for these strange numbers: More retirees are leaving the workforce, but delaying their Social Security applications, relying instead on other sources of income. That’s probably good news for these retirees, many of whom have made smart choices that should help them get more monthly and lifetime income.
Why is the decision to postpone Social Security a smart one?
So why is it a good thing that more people are retiring without claiming Social Security? There are two simple reasons:
- Delay Social Security results in a higher monthly income
- It also maximizes the chances of earning more lifetime benefits
Look, retirees can get their standard benefit by starting social security checks at their designated full retirement age. But since the FRA is between 66 and 2 months to 67, depending on the year of birth, those who start their checks before that time will eventually cut their monthly benefit because they are subject to early filing penalties. Seniors can claim benefits as early as age 62, and many do when they leave the workforce, but this can leave them with much less monthly income – a full 30% less if their FRA is 67.
Retirees who claim with their FRA are still missing out maximize their benefit, as starting checks then would mean missing out on the opportunity to earn deferred retirement loans. These credits can be earned up to age 70 and increase the number of monthly checks up to that time. They result in an 8% annual benefit increase, so retirees who wait longer than their FRA get more money each month.
The retirees currently waiting to claim their benefits will thus increase their monthly Social Security income, which could be a smart choice if they run out of savings later in life and end up relying on their benefits for a greater part of their lives. their total income.
Retirees who delay may also receive more lifetime income from the Social Security Administration. The benefits program is designed so that claim age does not matter, as smaller checks obtained earlier should in theory equal larger checks obtained after a delay. But as the lifespan has increased, a small majority of retirees ultimately better off delaying to age 70 because they live long enough that the higher monthly benefits from waiting last longer than it takes to break even for lost benefits.
Now, delay may not work for everyone as there are sometimes reasons why an early claim becomes necessary. But it’s still good news that more seniors are recognizing that waiting for benefits can be a smart financial move that eventually pays off.