Social Security has never been more important to retirement success. With the decline of corporate pension plans, it is the only source of guaranteed income for many of today’s retirees. It’s critically important to help your clients make the most of it so that they can have a successful retirement.
From all the research I’ve seen from top financial academics across the country, I have come to one simple conclusion about Social Security: It’s all about getting to age 70. By delaying to age 70, there are numerous powerful financial advantages for retirees beyond just maximizing the size of their Social Security benefit. It’s your job to share these compelling factors with clients, and then show them how to make it as easy as possible to delay.
Retirees can claim Social Security anytime between the ages of 62 and 70. Claiming at age 62 will result in the smallest Social Security benefit possible for life. Alternatively, claiming Social Security at age 70 maximizes Social Security benefits. Over the last three decades, the number of people claiming Social Security at age 62 has fallen to nearly its smallest percentage yet, although it is still the most popular age to claim. However, more people are realizing the benefits of waiting. In fact, the number of people claiming at age 66 has grown to its highest percentage in nearly 30 years. Very few people wait to age 70 to claim their benefits and I believe that is a big mistake.
Three compelling reasons to maximize Social Security benefits
First, most people don’t truly understand life expectancy and they underestimate how long they are going to live. Life expectancy is a mean average. This means 50 percent of people live beyond their own life expectancy. However, the other aspect is that the longer a person lives, the further out they push their life expectancy! Male life expectancy is age 75. However, if a healthy male reaches age 62, his life expectancy increases to age 84. For women, their life expectancy increases from age 80 to 86. One of the best ways to decrease the risk that a person is going to struggle financially in retirement regardless of how long they live is to maximize Social Security.
Another factor to consider is Social Security’s cost of living adjustment (COLA). I consider this to be one of the greatest gifts we receive from our federal government because it’s free for Social Security recipients. Traditionally, COLA has resulted in a 3 percent annual increase. While everyone receives the same COLA every year, those who receive a bigger Social Security benefit will receive a bigger real dollar increase. An individual receiving a $1,000 monthly benefit would see a $30 monthly increase, but an individual receiving a $2,000 monthly benefit would see an increase of $60. This may not seem like much, but over the course of a long retirement this extra pay increase adds up. By maximizing Social Security benefits, clients also maximize the size of their real dollar increases they receive from COLA every year.