Starting Age Permanently Affects Your Social Security Income
Starting Social Security Early May be a Mistake
Social Security is an important part of retirement income for many Americans. Knowing your Social Security estimated benefits can help you plan more confidently for the years ahead. To assist in this planning, using a social security estimator can provide a clearer picture of your future benefits. Social Security benefits play a key role in the retirement income picture for many individuals. Yet it’s not always clear what those benefits might look like — especially since they can vary depending on when you decide to start receiving them. Delaying Social Security benefits can significantly increase them. The Social Security calculator can demonstrate how starting benefits early can permanently and dramatically reduce your retirement benefits in later years.
Some retirees start their Social Security benefits early because of their belief that Social Security benefits may not continue in the future. These misinformed beliefs are promoted by investment salespersons convincing you to depend on their products while demeaning the value of Social Security. Social Security is a contract that the U.S. government has with its citizens. It is not going away because of funding. Just as the U.S. government continues to buy aircraft carriers and fighter jets it can’t fully afford. Similarly, the U.S. government will continue to pay Social Security benefits. Remember, the U.S. government just prints the money.
How to use the Social Security Calculator
Simply enter your date of birth and annual income to see a table of estimated benefits by age. Each row represents what your monthly and annual amounts could look like if you start claiming social security at that age. You can download a personalized PDF report summarizing your results for reference or discussion with a financial professional.
Why Delaying Social Security Start Date Matters
Starting your benefits early permanently reduces those benefits. Every year you delay starting your Social Security causes permanent benefits increases of about 8 percent PLUS the inflation that occurred that year. This could total to 10 to 16 percent increase for each year you delay starting benefits. Where else in the investment world can you get that kind of performance guaranteed by the U.S. government? If you need the benefits early you could draw from other sources whose performance is lower and not guaranteed.
The folly of Social Security Breakeven Analysis
It you delay receiving your benefits you lose that income forever. However, future income will be higher due to higher starting income. Starting income at 70 years old pays 72% higher income benefits than starting at age 62 PLUS the annual cost-of-living increases. A breakeven calculation can determine how long you need to live in order for the higher payments to make up the missed earlier payments. People are often hoodwinked by these breakeven calculators and start their Social Security payments too early.
Most of these calculators do not consider the effect of inflation. If you delay the start of benefits, the much larger benefits could receive much larger cost-of-living increases. Over a few years this can become a huge cost-of-living benefit adjustment. Properly considering inflation causes the breakeven age to come much earlier. Much higher future inflation could dramality shorten the breakeven year.
Many people misunderstand the purpose of Social Security. You should think of Social Security as insurance for living longer than you had imagined. After you spend through your other retirement assets or inflation erodes their value, you will still have Social Security. Wouldn’t it be nice if this guaranteed resource was allowed to grow as much as possible to provide inflation adjusted income that never stops.
The Need for a Financial Advisor
Please keep in mind that you need to seek out a financial advisor. How to optimize and combine your social security with pensions income, annuity income, IRA withdrawals, and other retirement resources is not a simple process. Do not make any financial decisions based solely on this social security calculator. Everyone’s situation is different and requires a personalized approach you get from a knowledgeable and qualified financial advisor.
Curtis Hill, CFP, IAR and Irina Hill, CPA, IAR, provide independent fiduciary financial advice, investment advice, retirement planning, and life insurance in the Long Beach, CA; Lakewood, CA; Carson, CA; Bixby Hills, CA; Signal Hill, CA; and Los Angeles, CA areas. We also provide advice and strategies to maximize your retirement planning.
Go to the Calendley.com calendar link to schedule an appointment with a retirement planning and social security expert, Curtis Hill or Irina Hill. Discover how to maximize your social security benefits. This website has a page dedicated to Social Security with a video that helps explain your options. Please click the button below to see this page and video. We also recommend you go to www.SSA.gov to check your personal government records of your Social Security benefits.
Curtis Hill, Irina Hill, Serenity Wealth Management, and Portfolio Medics Inc. are not the authors of the Social Security estimator and are not responsible for the content, or the accuracy of the Social Security estimator. The Social Security estimator was created by and powered by the good people at HEDGENESS Inc.