It’s 2024, the world is changing fast, and, as a CPA, your retirement finances are quickly becoming your primary concern. Social Security benefits will become available to you in just a few short years. At that point, you’ll face a crossroads – should you start taking your Social Security benefits immediately, delay for a few years, or delay as long as possible? The correct answer for you just ten years ago may be the wrong one now in these changing times.
In this article, we’ll discuss what’s changed in the retirement landscape, how technology is promising even more significant changes, and how you can integrate these into your decision-making process regarding whether or not to delay Social Security benefits.
How Social Security Works
But before we proceed, let’s discuss the implications of claiming early or delaying your benefits. Starting from age 62, you can begin receiving Social Security retirement benefits, though the monthly payments will be lower than waiting until your Full Retirement Age (FRA).
By claiming benefits at 62, you may receive as little as 70% of your total benefit amount. As long as you hold off on receiving your benefits, your monthly payment will continue to grow each month. Once you reach your FRA, you’ll be eligible to receive the complete or ‘100%’ of your calculated benefits.
What’s My Full Retirement Age?
Born in 1955: 66 and 2 months
Born in 1956: 66 and 4 months
Born in 1957: 66 and 6 months
Born in 1958: 66 and 8 months
Born in 1959: 66 and 10 months
Born in 1960 or later: 67
If you delay taking benefits beyond your full retirement age (FRA), your monthly benefit amount will increase until you reach 70. If your FRA is age 66, your maximum benefit would be 132%, and if your FRA is age 67, your maximum benefit would be 124%. Beyond that, there’s no point in delaying any further—unless you still work and prefer your paycheck over your benefits.
Social Security uses actuarial tables and complex calculations to ensure that, on average, beneficiaries receive approximately the same total lifetime benefits regardless of when they start claiming. The logic goes that if you start claiming at age 62 with a lower benefit and pass away at age 78, you’d receive the same total amount as delaying benefits until age 70 and then passing away at age 78.
When to Delay Social Security
Understanding that your total lifetime benefit amount is designed to remain approximately the same helps us decide whether to delay.
You Expect to Live Longer than Expected
The way technology is advancing, you may end up living longer than even the Social Security Administration expects. Scientists at Northeastern University believe that slowing down the aging process can lead to an additional 30-35 years of life. Now, many research universities, research centers, and pharmaceutical companies are drastically benefiting from the exploding field of artificial intelligence to discover methods to slow down aging, cure diseases, and develop novel drugs. We’re truly on the cusp of a medical revolution!
So, if you feel healthy, don’t need the money, and hope that you’ll see that additional twenty to thirty years of life, then perhaps you’d take the gambit of delaying.
However, the opposite is also true. If your health is already failing, you may as well claim what’s rightfully yours while you still can. Plus, you could probably use the money to help pay for medical expenses.
You’re Still Working
If you’re working and haven’t reached your Full Retirement Age in 2024, be aware that earning too much might reduce your Social Security benefits. Earnings above $22,320 will lead to $1 being deducted for every $2 over this limit. However, the year you reach FRA, the rules change slightly: $1 will be deducted for every $3 you earn over $59,520 up until the month before your FRA. After reaching FRA, there are no earnings limits, allowing you to claim your full benefits without penalty.
You Don’t Need the Money
Speaking of needing the money, there may be no point in delaying Social Security if doing so will keep you out of the poor house. Social Security is a safety net, after all. However, if you’re doing fine and can hold off until at least your FRA, or even beyond, then why not?
By ‘doing fine,’ we mean that your investments are more than capable of bridging your income gap until you activate your benefits. Essentially, relying on your investments earlier in retirement will amplify each of the primary retirement risks, such as inflation, longevity risk, negative sequence of returns, and tax risks.
Social Security benefits may help you achieve your desired income while maintaining a lower tax bracket and drawing less from your retirement savings. This is because Social Security benefits are taxed only beyond certain retirement income thresholds. With a clever application of the tax code, you can potentially reduce your tax obligation to zero.
Knowing whether or not you need the money requires more than a quick glance at your account balance and portfolio size. An expert can help you determine which strategy suits your situation.
To Increase Spousal Benefits
If half of your spouse’s benefit is higher than your own, you will automatically receive your benefit based on their earnings history, as long as they have already started receiving benefits.
If they haven’t, you can start claiming your benefits and then file for an excess spousal benefit once your spouse begins claiming.
To clarify further, there is no advantage for you, as a spouse, to delay taking Social Security until age 70 if you qualify for a higher benefit due to your spouse’s earnings history. In fact, delaying your claim beyond your full retirement age does not result in any additional benefit increase. However, just as with claiming one’s own benefits, spouses face the same penalty for claiming benefits early.
To Increase Survivor Benefits
Survivor benefits differ significantly from spousal benefits. A surviving spouse may be eligible to receive up to 100% of the deceased spouse’s benefit if it’s higher than their own retirement benefit. This provision is particularly beneficial in cases where there’s a significant disparity in earnings. Initially, survivors can choose to receive their own retirement benefit or the survivor benefit. Later, they may switch to the other if doing so would lead to a higher benefit.
Wrapping It Up
CPAs have an inherent ability to crunch the numbers and make the most logical decision from a statistical point of view. Retirement planning can often veer from the boundaries of purely rational thought to emotional decisions that can affect you and your family’s financial future for years to come.
Choosing whether or not to delay Social Security benefits shouldn’t be a purely numbers-based decision. Instead, it should consider all possible factors, some of which are emotionally charged and require an impartial third-party participant who truly has your best interests at heart to determine the best path. If you’d like assistance optimizing your Social Security claiming strategy, one of the professionals at CPA Retirement Solutions would be honored to sit down with you, explain your options, and help you make the correct decision. Just click the button below!
