Few things in retirement are as crucial as deciding when to start receiving Social Security benefits. If you are thinking about joining the nearly 600,000 retired workers who currently receive benefits at an earlier age62 years old, you might want to know exactly what you’re getting into first.
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According to data from the Social Security Administration, at the end of last year, these beneficiaries received on average $1,298 per month. Compare that to the roughly 2.1 million retired workers at full retirement age (FRA) of 66 who received average checks of $1,740 — troubling evidence of the value of delaying your Social Security withdrawals if you can afford it.
Is the average benefit of age 62 enough?
Many retirees want access to Social Security funds after paying into the program their entire career through payroll taxes. Social Security, however, rewards delayed gratification. The age at which you begin receiving retirement benefits has a significant impact on the amount you receive. Here’s a breakdown:
Claiming at 62: If you claim benefits at age 62, your monthly check will be reduced by up to 30% compared to what you would receive at full retirement age. This reduction is permanent.
Claim at FRA: If you wait until full retirement age – 67 for people turning 62 in 2024 – you will receive 100% of your benefit calculated based on your earnings history.
Claiming at 70: If you delay benefits beyond full retirement age, you can increase your monthly benefit by about 8% each year until age 70.
But will claiming at 62 be enough to help you get through retirement? It depends. No two retirees are alike. The amount of income you need depends on a number of factors, including your lifestyle, health care needs and where you live. Financial planners generally recommend replacing about 70% of your pre-retirement income to maintain your standard of living.
The average benefit at age 62 is unlikely to be enough for many retirees if they expect Social Security to be theirs sole source of income. Over the course of a year, this monthly average equates to about $15,576. This highlights the importance of having additional sources of retirement income, such as savings, pensions or part-time work.
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Strategies to strengthen your financial position
If claiming Social Security retirement benefits as soon as possible isn’t enough to cover your expenses, here are some strategies to improve your financial position:
Delay Social Security: If possible, delay claiming benefits to increase your monthly check. Waiting until age 70 can significantly increase your benefit amount.
Increase your savings: Increase contributions to retirement accounts like 401(k)s, IRAsor Roth IRAs. Take advantage of catch-up contributions if you are over 50.
Work more: Continuing to work, even part-time, can provide additional income and provide some wiggle room to delay claiming Social Security benefits. It also means spending fewer retirement assets and possibly increasing your savings.
Reduce expenses: Look for ways to cut costs, such as downsizing your home, moving to a more affordable area, or eliminating unnecessary expenses.
Invest wisely: Consider working with a financial advisor to create a diversified investment portfolio that aligns with your risk tolerance and retirement goals.
Use home equity: For homeowners, tapping into home equity through a reverse mortgage or home equity line of credit can provide additional funds. However, this must be done carefully to avoid compounding your income challenges with new debt.
Health planning: Plan for healthcare costs by exploring options like Health Savings Account and long-term care insurance.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
