(Keith Speights)
Work. Withdraw. Receive your monthly Social Security checks. The process seems simple. And it is – for the most part.
The reality, however, is that there are important decisions you will need to make regarding Social Security along the way. Some of them have big consequences. There’s a Social Security mistake that could even cost you $182,000.
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The early bird does not catch the worm
You might think that $182,000 figure can’t be true. But that is the case for many Americans, according to a working paper recently published online by the National Bureau of Economic Research (NBER).
David Altig of the Federal Reserve Bank of Atlanta, Boston University research associate Laurence Kotlikoff, and Opendoor Technologies researcher Victor Yifan Ye conducted a detailed analysis of the economic costs of early claim for health benefits. social Security. They discovered that the old adage that the early bird catches the worm was wrong.
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The article published by the NBER determined that almost all Americans between the ages of 45 and 62 would have to wait until at least age 65 to begin receiving Social Security retirement benefits. More than 90% of these people would be better off waiting until they are 70.
However, few of those Americans wait until age 70 to collect Social Security benefits — just 10.2%, according to Altig, Kotlikoff and Ye. The researchers found that early Social Security applicants paid a high price: the median lifetime loss resulting from not waiting until age 70 was $182,370.
When waiting is not the best option
These numbers don’t lie. There really is a significant cost associated with starting to receive Social Security benefits before age 70 for many Americans. However, are there times when waiting to claim benefits is not the best financial option? Absolutely.
Probably the best reason to take Social Security at age 62 is if you’re dealing with serious health issues. Any analysis of when to file a claim for benefits should include life expectancy.
The Social Security Administration’s actuarial tables predict that the average man who reaches age 62 will live another 20 years. These tables estimate that the average 62-year-old woman will live another 23 years. If your health condition makes it likely that your life expectancy will be shorter than these projections, it might be a good idea to apply for Social Security retirement benefits sooner.
Some wealthier people don’t need Social Security checks to lead a comfortable life in their retirement years. They could, however, start collecting benefits before full retirement age and invest the money. It is possible that their investment returns will be greater than the amount they would have earned while waiting to receive Social Security benefits.
Of course, some people are willing to accept the negative financial consequences of claiming Social Security benefits early. They believe the benefits of early retirement are worth the price they pay.
Plan carefully
When to apply for Social Security benefits is one of the most important retirement decisions you can make. As the NBER article shows, waiting until age 70 makes financial sense for most Americans. However, waiting that long might be unappealing if it means working longer than you would like.
Ultimately, each person must decide what is best for them. Whatever you do, plan carefully. Your decision could have a cost.
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