Social Security benefits: Why it pays to delay

Social Security benefits: Why it pays to delay

Most retirees will rely on Social Security for retirement income, but those who claim the benefit too early may be short-changing themselves.

Social Security provides a retirement income stream
Social Security plays a critical role in any comprehensive and sustainable retirement income plan. Social Security benefits currently provide more than half of retirement income for 53% of couples and 74% of individuals.

Optimizing the benefit
Risks associated with saving for retirement include the risk of longevity, inflation, fluctuating markets, taxes, and income. While Social Security is not the single solution for all of these issues, it may mitigate these risks by providing a guaranteed stream of income.

Social Security income can act as a stabilizing factor in market downturns. While variable retirement savings vehicles can lose money in a market decline, a guaranteed source of income can offer consistency and may help clients avoid liquidating other investments to meet expenses.

Some common mistakes that people make when claiming Social Security:

  • People underestimate life expectancy
    Both men and women are living longer in general, and women continue to outlive men. In 2011, the life expectancy was 76.3 years for men and 81.1 for women, compared with 75.7 for men and 80.6 for women in 2009, a record-setting year according the Centers for Disease Control.
  • Today, planning for the future may mean 25 to 30 years in retirement.

  • Retirees may claim their benefit too early
    If retirees claim Social Security before reaching full retirement age, they will not maximize their benefit.

  • Focusing on one income may mean failing to plan for surviving spouse
    Many households have one primary earner and sometimes retirees look at Social Security inclusive to that worker. It is important for married couples to consider joint life expectancy when deciding about claiming benefits. Because of spousal benefits, couples have options about claiming benefits.
    Determining the best time to apply for Social Security also depends upon a couple’s financial and tax situation, age difference, and life expectancy. Claiming benefits early can affect not only the monthly benefit amount, but also the benefits received by the spouse, and, ultimately, the survivor’s benefits.

In planning for retirement, it is important to consult with a financial advisor or tax expert to determine strategies that will benefit an individual’s financial situation.


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