When to Claim Social Security
The decision of when to take Social Security benefits, is for many Americans, largely a matter of financial necessity rather than financial planning.
However, if you're in the fortunate financial position of having other assets that will finance your retirement, then you can afford to make your decision about claiming Social Security based on hard numbers.
Claiming your Social Security benefits early can provide an extra boost to your investments, as long as you can keep earning high enough returns on your portfolio.
But for those who are coming up short in their retirement savings, delaying your Social Security benefits could result in a bigger payout, and this could be a big help in your retirement years.
Your Social Security benefit at full retirement age is based on your highest 35 years of earnings. But what if there is a low or zero income year in those top 35 years? By working an extra year in your late career, you could increase your payout by raising the amount in those top 35 years.
For 46% of women and 15% of men, working until age 63 instead of 62 replaced a zero-income year in that calculation, according to a new working paper from the Center for Retirement Research at Boston College.
If late-career earnings replace a zero in the calculation of your benefits, you could see an increase in the benefit you're entitled to at full retirement age.
"We were really surprised at how many people have zeroes in that top 35, especially women," said study author Matt Rutledge, a research economist at the center.
The big benefit of delaying is in the actuarial adjustment of when you claim Social Security in relation to your full retirement age. Claiming before your full retirement age permanently reduces your benefits; each year you delay from full retirement age until you turn 70 boosts the total by 8%.
Someone who retires and begins claiming Social Security at age 70 would receive a benefit that's 76% higher than the one he or she would receive at age 62, according to the study. Factor in late-career earnings replacing a zero-income year, and the increase becomes as much as 88% for women and 82% for men.
Women stand to benefit most from working longer because they tend to have more zeroes in their earnings record. Women work an average 29 years to men's 38, [5] and they spend an average 5.5 years out of the workforce caring for children, and 1.2 years out as a caregiver for an older adult.
Get a copy of your earnings record from Social Security to see how much impact late-career earnings would have on your benefit.
Keep in mind that you might also have access to benefits based on the record of a spouse or ex-spouse. That benefit could already be larger than what you'd be entitled to with a few more work years under your belt.
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