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Why waiting to take Social Security benefits can pay off for clients

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Most Americans depend on Social Security for retirement income. Among Americans aged 65 or older who are Social Security beneficiaries, 50 percent of married couples and 70 percent of unmarried persons receive 50 percent or more of their income from Social Security. Of them, 21 percent of married couples and about 45 percent of unmarried persons rely on Social Security benefits for at least 90 percent of their income.

With Social Security's major role, it's important clients try and get the most out of the benefits they've earned. The full retirement age is the age individuals are eligible to receive 100 percent of their Social Security benefits. The full retirement age is 66 for eligible workers born between 1943 and 1954, and it increases incrementally up to age 67 for those born 1960 and later. Here are some reasons why waiting to full retirement age, and beyond, may pay off for your clients.

Collect before full retirement age and they'll instantly lose money.
Over half of Americans begin collecting Social Security before reaching their full retirement age. Keep in mind that starting early means a significant decrease in a client's monthly benefit amount, and a reduction in the total amount received from the government over the client's lifetime. The SSA has a helpful benefit reduction chart that provides examples.

Wait until age 70, and they'll receive a 77 percent higher monthly payout.
Beginning at age 62 and ending at age 70, the benefit grows up to 8 percent per year for each year that you defer taking benefits. That's a significant rate of return.

Let's compare two people with the same income, work history and birth year, except one claims Social Security benefits at age 62 and the other waits till age 70. The person claiming at age 70 will receive a 77 percent higher monthly payout.

Keep in mind longevity too. With some people living longer, that higher monthly payout can make a big difference when it comes to managing ever-increasing health care costs, prescription drugs or even using the money for travel.

Provide more for loved ones.
A survivor's (spouse or children) benefit amount is based on his or her earnings. The more that's paid into Social Security, the higher the benefits to the survivor will be.

Survivor benefits are based on a percentage of the basic Social Security benefit of the person who passed away. The amount also depends on the survivor's age and the type of benefit he or she is eligible to receive. For example, if a client claimed benefits before his or her full retirement age and was receiving reduced benefits, the loved one's benefit would be based on that reduced amount.

Taking these factors into consideration can help clients determine the best timing for claiming Social Security benefits. When they take a step back to see how Social Security fits into their retirement income plan, they may be able to see where they need to make some adjustments. It's a great discussion to have with your clients.

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