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When to Claim Social Security Benefits?

Fall 2011 Edition

Most people are mishandling what is arguably the most important retirement planning decision they will make. Claiming Social Security benefits needs to be first a decision about retirement income security and not about how to garner the most dollars from the system.

Here’s what we know. Over 50% of those eligible have claimed and will claim their Social Security retired-worker benefits at age 62, the earliest possible age under the law. Less than 4% wait until after full retirement age (currently age 66) to claim benefits. The explanation is simple. Most people consider their life expectancy and use breakevenanalysis to garner the largest possible amount from the system. This strategy does not protect against an even greater risk than “losing money” if they die after age 62 but before either the claiming age or the break-even age – the risk of outliving their assets.

Another way of looking at this argument of rethinking the start date of Social Security is to ask, how much of earnings does Social Security replace at different ages? For a married couple with one wage earner earning $80,000 annually, Social Security benefits for the couple replace 31% at age 62, 42% at age 66, and 57% at age 70, resulting in a much more secure retirement thereafter.

Longevity risk protection can be addressed with various types of annuity products. However, Social Security is a unique type of guaranteed income annuity, since it is eligible for Consumer Price Index (CPI)-based COLAs. Commercial immediate annuities typically do not have cost-of-living increases.

The choice of a claiming-age is much more than getting your “money’s worth” from the system. For the vast majority of retirees, insurance from extreme poverty in old age will be more important than the extra dollars in the early years of retirement.

Please call us to learn about our Dependable Retirement Income Solution TM and The R.I.S.K. Process TM for building sustainable income in your retirement.

Guarantees from annuities are based on the claims-paying ability of the insurer and often come at an additional cost.

Any tax advice contained herein is of a general nature. You should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as financial planners.