Baby boomers wait it out
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When it comes to retirement and applying for Social Security benefits, the magic number used to be 62, where many people applied to begin receiving Social Security at that age. But in recent years, that number is changing.
According to research from Boston College's Center for Retirement Research, the percentage of 62-year-olds claiming at 62 shows a steady decline over the past two decades. In 2019, just one in four people claimed benefits as soon as they became eligible. Specifically, the proportion of women claiming at 62 hovered around 60 percent until 2005 and then dropped gradually to 34 percent by 2019. For men, around 55 percent claimed benefits at 62 in 2005, and then dropped gradually to 31 percent in 2019. Later in 2020 with the health and economic events that followed, it was predicted that an increase in early claiming would have occurred, but in fact, many people remained in the workforce or delayed claiming to preserve their Social Security benefits.
Delaying retirement
Among those who forgo claiming their benefits early, many people appear to wait to their full retirement age (65 to 67, depending on when you were born) to claim Social Security. The amount of your wages that Social Security benefits replace depends on your earnings and when you choose to start benefits. If you wait until your full retirement age, you’ll receive your full benefit amount. If you decide to claim earlier, your benefit amount is reduced by a percentage each month. For example, if your full retirement age is 67 and decide to claim Social Security when you’re 62, you would receive only about 70 percent of your full benefit.
You may still be able to increase your benefit amount, depending on your particular situation. If you filed for benefits less than 12 months ago, you have one opportunity to cancel or withdraw your filling application, repay all benefits in one lump sum and then reapply later.
If you filed early and have now reached your full retirement age, you can suspend your benefits. For every year up to age 70 that you don’t receive benefits, the benefit you now receive will increase by 8 percent. Your benefits will restart automatically at age 70 if you haven’t already reclaimed them.
Remember that exercising either of these options will affect anyone else who is receiving benefits based on your earnings history and may also change how you pay Medicare premiums.
Reaching full retirement age
Even when you reach full retirement age, it is not required that you file for Social Security immediately. You can secure a higher benefit amount if you choose to file later. In fact, each year you wait past your full retirement age, your benefit will increase by 8 percent. However, the benefit stops increasing at age 70. If you anticipate a long retirement, holding off on claiming your Social Security benefits may be a good strategy. Plus, if you’re married, it can also benefit your spouse if you pass away. If your spouse’s benefit is lower than yours, he or she can begin taking your increased amount as a survivor benefit.
Determining when to start receiving benefits is an important decision and will depend on your financial situation and retirement goals. Your financial professional can be a valuable resource when determining your Social Security strategy and how to supplement your retirement plan to ensure financial security for the future. Together you can discuss the benefits to waiting until your full retirement age to retire and/or begin collecting Social Security. For instance, working longer means more money that you can contribute to your retirement accounts and claiming later will also lead to a higher monthly benefit check.
Build a retirement timeline
The path to retirement has several milestones and stopping to review your goals at each checkpoint can help ensure your retirement plans stay on track. Your financial professional can discuss this timeline and how to develop a retirement income strategy that will work for you.
- Age 50: You can begin making additional “catch up” contributions to your 401(k) or profit sharing plan up to an annual maximum
- Age 55: If you separate from service during or after the year you reach age 55, you can take penalty-free distributions from your current employer's retirement plan.
- Age 59½: You may take Individual Retirement Account (IRA) withdrawals without a tax penalty. Traditional IRA withdrawals will be taxed as income. Roth IRA distributions will be tax-free if the Roth IRA has been held for at least five years.
- Age 62: At this age, you become eligible for Social Security benefits. Remember, your benefits are reduced by a fraction of a percent for each month before your full retirement age which varies depending on your birth year.
- Age 65: You become eligible to sign up for Medicare three months before you turn 65 and for those under 65 with certain disabilities.
- Age 70: If you delay claiming Social Security benefits, until after your full retirement age, you may be eligible for increased payments. After age 70, however, there is no additional incentive for delaying benefits.
- Age 73: At this age, you must start taking your annual required minimum distributions (RMDs) from most tax qualified retirement accounts. Although you may withdraw more than the RMD, you cannot withdraw less. Keep in mind that all withdrawals, including RMDs, may be taxed as ordinary income.1
Create a retirement income strategy
Creating a retirement income plan that supplements your Social Security benefits is important to building financial security and overcoming retirement risks like inflation, rising health care costs and market volatility — along with living a potentially longer life. When meeting with your financial professional, discuss your vision for the future and when claiming Social Security makes the most sense for you. During your discussion, you can:
- Estimate your Social Security benefits using the SSA calculator
- Review your goals and overall retirement needs
- Discuss your Social Security strategy and how it fits into your overall retirement picture
- Assess sources of retirement income
- Explore ways to create or increase your guaranteed income stream
With this big picture in mind, you can then explore ways to bridge potential income gaps and find the solutions that can turn your retirement dreams into reality.
This information is brought to you by Athene — where unconventional thinking brings you innovative annuity solutions to help make your retirement dreams a reality.
1The IRS requires individuals to take a required minimum distribution (RMD) each year once you reach age 73. The deadline for taking RMDs is December 31 of each year. You may delay taking your first RMD (and only your first) until April 1 of the year after you reach the required beginning age. If you choose to delay your first RMD, you’ll have to take your first and second RMD in the same tax year. If an IRA owner fails to withdraw the RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%.
Any information regarding taxation contained herein is based on our understanding of current tax law, which is subject to change and differing interpretations. This information should not be relied on as tax or legal advice and cannot be used by any taxpayer for the purposes of avoiding penalties under the Internal Revenue Code. We recommend that taxpayers consult with their professional tax and legal advisors for applicability to their personal circumstances
This material contains educational information regarding the availability and details surrounding the Social Security program and is not intended to promote any product or service offered by Athene. The information represents a general understanding of the Social Security Program and should not be considered personalized advice regarding Social Security, tax, or legal advice. Details of the Social Security Program are subject to change. A tax or legal advisor should be consulted prior to making any decision. Visit www.ssa.gov for additional details.
Except where noted otherwise, the information about Social Security contained herein has been sourced from the Social Security Administration and its website, www.ssa.gov, as of March 2021. While substantial effort has been taken to ensure the accuracy of the content of this presentation as of the time of creation, no guarantee is made as to accuracy or completeness. Details of the Social Security program are subject to change at any time without warning. For more information and to gain a better understanding of the range of options and benefits available under Social Security, visit www.ssa.gov. Athene is not responsible for content on the Social Security Administration’s website.