If you are looking to maximize your cumulative potential lifetime benefits it almost always works best to claim your benefits at age 70. However, life is not just about maximizing potential income. More often, it is about maximizing the joy and fullness we can experience over the remainder of our lives.
If we have to delay our dreams solely to maximize our money, that may be a recipe for drudgery, at least until we can quit working. To this end, we’re going to look at some options that are available that will make those dreams more achievable.
Consider a single person, Tricia, who is 60 years old. She currently has $180,000 and hopes to work a couple of years more, maybe retiring and relocating overseas when she’s 62 and could start Social Security. She found a place where she is confident she can live quite well on $1,500 a month; she would like to know if she could up that a bit, say to $2,200 a month when she turns 70, and remain financially secure throughout her retirement…
But her careful planning is rudely interrupted. She receives notice from work that her position is being terminated in 30 days. She can’t afford to keep living where she is without a steady income…she would burn through her hard-earned savings in no time. Frantically she searches for another job…
Then Tricia had a thought…what if she could just put her relocation plan into effect earlier? She wasn’t keen about that old job anyway. So, she began to work through the numbers.
She figured she’d need to dip into her savings for two years, until she reached age 62. With $5,000 budgeted for relocation and spending $1,500 per month, she’ll spend $41,000 from her savings. That leaves $139,000 (assuming that her savings just keep up with inflation). At 62 she could start Social Security and receive $1,500; that’s just enough to cover her living expenses to age 70 without touching any more of her savings.
However, if she bumps the spending to $2,200 at age 70, she’ll be seriously dipping into her savings thereafter. In fact, at that rate she would run out of savings when she reaches 87…not a formula for financial security in her old age.
Tricia’s safer choice is to try to wait and file her claim until she is much closer to age 70. On a $1,500-per-month spending budget, she is a few months shy of enough money to make it all the way to 70. However, she is in a great position to take the “wait and see” approach.
What’s “wait and see”? Tricia can start up her Social Security benefit at any time. Yet each month she waits, the benefit amount increases a little bit for the rest of her life. Those little bits add up: 76% more at age 70 compared to age 62, plus all the inflation in between.
Maybe Tricia finds a way to live well on a little less. Maybe she finds some part-time work she enjoys—tutoring English, writing articles, arranging tours. Maybe she has better earnings on her remaining savings. With “wait and see” she keeps her options open.
Here’s how this can work out well for her.
Suppose she reaches age 66-and-a-half and she is still waiting to claim. She has about $58,000 remaining in her savings and she needs some extra cash and is concerned that her savings are dwindling. She can file a retroactive claim, collect a lump sum of $12,000 and continue receiving $2,000 a month thereafter.
Later she could decide to “suspend” her benefits again, say when she turns 67, her benefit would continue to grow up to age 70. In this case, she would have a slightly lower benefit at age 70, $2,480 instead of the maximum $2,640 if she had not taken a year’s worth of benefits.
If Tricia reaches her 86th birthday—her life expectancy when she starts out—she has over $70,000 in savings. Spending $2,200 a month leaves several thousand dollars a year to add to her savings. That’s a far better outcome than if she had claimed at 62 and faced running out of savings at 87 and was stuck trying to get by on only $1,500 a month of benefit income.
Having that job end early—and finding a great Social Security claiming strategy—was the best thing that could have happened to Tricia.
Image: ©iStock.com/Courtney Keating
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