Sporrer/Rupp | Image source | Getty Images
The largest and final cohort of the baby boom generation – 30.4 million Americans – will be 65 by 2030.
And more than half of this group will rely primarily on Social Security for income, according to a new study from the Alliance for Lifetime Income.
Deciding when to apply for Social Security retirement benefits is a high-stakes decision. Generally, the longer you wait, the larger your monthly checks will be.
Eligibility for retirement benefits begins at age 62. But full retirement age – typically 66 or 67, depending on the individual’s birth year – is the time when retirees can receive 100% of the benefits they’ve earned.
For each year you wait beyond your full retirement age to age 70, you can receive an 8% increase in your benefits.
“Everyone should know that you face a penalty if you collect your contributions before age 70,” said Teresa Ghilarducci, a professor at the New School for Social Research and author of the book “Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy. “
Yet, according to a new study from the Alliance for Lifetime Income, the majority of new retirees tend to claim benefits before age 65, even though waiting another five to eight years would result in higher lifetime benefits.
How to find out your full retirement age
To determine when to apply, you first need to know your full retirement age, which is when you are eligible for 100% of the benefits you have earned.
Today, a new full retirement age, set at 67, is gradually being implemented.
“For most people retiring today, their full retirement age is between 66 and 67,” said Joe Elsasser, a certified financial planner and president of Covisum, a financial software company. social security claim.
If you were born between 1943 and 1954, your full retirement age is 66. The full retirement age increases gradually if you were born between 1955 and 1960 until you reach 67 years old. If you were born in 1960 or later, your full retirement age is 67. .
Full Social Security retirement age
| year of birth | Full Social Security retirement age |
|---|---|
| 1943-1954 | 66 |
| 1955 | 66 and two months |
| 1956 | 66 and four months |
| 1957 | 66 and six months |
| 1958 | 66 and eight months |
| 1959 | 66 and 10 months |
| 1960 and after | 67 |
Source: Social Security Administration
Why it pays to delay retirement benefits
According to experts, applying at age 62 comes with significant penalties.
For people who turn 65 this year, filing early would result in a 30% reduction in benefits. Instead of $1,000 per month at full retirement age, 66 and 10 months, they would receive about $700 per month if they applied at 62.
Most people know that filing early will result in reduced benefits, according to a Schroders survey from last year. However, many respondents still planned to start their monthly checkups earlier.
Using the word “early” to describe claiming at age 62 may lead people to think there is an advantage to filing a claim at that time, noted Shai Akabas, executive director of the economic policy program at Bipartisan Policy Center, during a presentation of the Alliance for Lifetime Income.
Instead, it could be called the “minimum benefit age” to help people understand that there are benefit reductions for claiming at that time, he said.
A bipartisan group of senators called for this change, as well as changing the “full retirement age” to the “standard benefits age.” Age 70, the highest age to claim benefits, would be called the “peak benefits age.”
When deciding the right time to apply for Social Security, retirees should consider not only their monthly benefit amount, but also their lifetime benefits, longevity protection and immediate needs, according to Bipartisan Policy Center.
It is also helpful to consider how an application decision will affect a spouse or dependents who may also receive benefits based on a worker’s record.
Research has found that only about 8 percent of beneficiaries wait until age 70, the oldest possible age to apply for benefits, according to Ghilarducci. Since Social Security benefits are one of the few sources of guaranteed income for many retirees, having smaller monthly checks can make them more financially vulnerable.
Those who can’t delay their Social Security benefits for years can still increase their lifetime benefit income by delaying just a few months, according to Ghilarducci.
“Do everything you can to access a higher amount of Social Security benefits,” Ghilarducci said.
cnbc
