If you have paid taxes into the Social Security system and reach age 62, you can apply for retirement benefits. However, your monthly Social Security payment would be larger if you wait until your full retirement age, which is usually 66 or 67. Those who delay their benefits until age 70 will receive the maximum monthly amount, and there are no additional increases for benefit deferral after age 70.
Consider the following guidelines if you postpone receiving Social Security benefits until 70.
- Recognize what you will receive.
- Deplete other accounts.
- Develop a financial strategy.
- Continue working.
- Lower your living expenses.
- Consider your spouse.
Recognize What You Will Receive
You receive Social Security benefits based on your birth year, the wage you earned during your working years, and the age at which you begin receiving Social Security. Brandon Ashton, director of retirement security at Cornerstone Financial Services in Southfield, Michigan, explains for each year you postpone claiming Social Security payments beyond your full retirement age, you will earn delayed retirement credits. These delayed retirement credits might result in simple annual interest rate hikes of up to 8%.
Deplete other accounts.
Until age 70, the monthly benefit amount increases annually. If your full retirement age is 66 and you don’t file for Social Security until you’re 70, you may expect to earn 32% larger payments. When you begin receiving benefits, your Social Security statement estimates how much you can expect to earn.
You can access your savings and investment accounts for three to five years if you postpone collecting Social Security. Edmisten advises retirees to consider using CD and bond interest, dividends from dividend-paying companies, and maybe the sale of valuable assets held for more than a year to create additional income for retirement expenditures.
Develop a financial strategy.
As you plan your budget for the following years, consider an annuity to supplement your income. Ashton explains Annuities are contracts offered by insurance firms that might give a lifetime income guarantee in exchange for a lump sum payment. There are several forms of annuities, and you will need adequate sums upfront in many situations. In certain situations, it is possible to establish annuity payments for the years between retirement and age 70. Kevin Lao, a financial advisor and the creator of Imagine Financial Security in Jacksonville, Florida, gives the example of a 55-year-old retiree who establishes a 15-year fixed-term guaranteed annuity. This income will bridge the gap until Social Security benefits commence at age 70. These annuities may be purchased with retirement or non-retirement funds.
If you are in excellent health, you might continue working beyond age 65 to maintain your home and standard of living. Before retirement, the majority of individuals earn the most, Ashton adds. Waiting an extra year or two might help you earn delayed retirement credits and increase your retirement funds. Once you reach the age of 50 or older, you can contribute an extra $6,500 to your 401(k), 403(b), or 457 plan in 2022, in addition to the yearly contribution limit of $20,500. You can also contribute an additional $1,000 to a Roth or regular IRA over the $6,000 limit for 2022.
Lower your living expenses.
By cutting your monthly spending, you may stretch your funds and live on less until you reach age 70 and become eligible for Social Security. Downsizing is one method for reducing home expenditures. For retirement, you may want to consider selling your property and purchasing a less costly one or moving to a less expensive city, Lao advises. This might provide tax-free cash that you can utilize as a bridge to your Social Security income. The exclusion for a principal house is $500,000 for a married couple and $250,000 for a single individual. Paying off high-interest debt, canceling internet subscriptions, vacationing, and dining out less regularly are ways to save money.
Consider Your Spouse
Both of you may be eligible for Social Security benefits; determine which one will be greater. You might elect to begin receiving the lesser benefit and defer the bigger payment. “You should defer the greater of the two bonuses until age 70,” advises Lao. The survivor benefit grants the bigger of the two bonuses to the spouse who survives longer. In this manner, the surviving spouse will receive the greatest potential lifetime benefit, explains Lao.