The Cost of Claiming Social Security Too Early

Social Security

The Cost of Claiming Social Security Too Early

Posted by COTO Insurance & Financial Services
6 years ago | May 7, 2018

Planning for your Social Security benefits, especially when to claim them, is one of the most important aspects of retirement planning. It’s also one of the least understood, in terms of how your timing will impact your monthly benefit amount. While there is no answer that is “right” for every situation, understanding how timing affects your benefits will help you make the decision that is best for you.

As you might already know, everyone has a “full retirement age” as determined by Social Security (according to their birth date). Once you reach full retirement age, you can claim your full scheduled benefits as determined by the Administration’s formula. But of course, you can also claim benefits early (and they will be permanently reduced) or you can wait until later (and earn higher monthly benefits as a result).

For those who are able and desire to keep working past their full retirement age, the answer is probably quite simple. For each year past your full retirement age that you delay claiming benefits, your eventual benefit grows by about 8 percent. But since that benefit growth stops at age 70, you should claim your benefits at that point, even if you’re still working.

For everyone else, the situation is more murky. One thing to consider is that if you claim benefits earlier than your full retirement age, Social Security will withhold one dollar of your benefits each month for every two dollars that you earn above a particular annual earnings cap. Currently that cap is set at $17,040. So, if you earn more than that amount, claiming your benefits early might not be your best course of action.

Life expectancy is another consideration. Some people want to retire early, or need to do so when health issues arise. If you claim your benefits before full retirement age, you know that those benefits will be permanently reduced by as much as 25 percent. However, this might not matter to you, if you don’t expect a long retirement.

These are just a few of the many issues to consider, before deciding when to claim your Social Security benefits. As you continue planning for retirement, remember to meet with us regularly so that we can help you evaluate all possible scenarios.

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