Social security has been around since 1935 and is meant to provide financial assistance for retirees, as well as those who cannot work. Social security assistance is a great program that can be beneficial to us when we need it. However, depending how and when you apply for it can be either helpful or detrimental to you.
Currently, Americans are throwing away thousands to hundreds of thousands of dollars of their income when they file for social security benefits too soon. If you are like most people and plan on filing benefits when you are close to retiring, you need to be thinking about several things because the decision you make will influence your income greatly. If you decide to apply for social security as early as when you’re 62 years old, you’ll be locked into lowered benefits for you as long as you live.
Currently, those who wait to retire until 66 will have full social security benefits. If you wait longer than that to file, your monthly checks will look much more pleasant. If you file as a single person at seventy, your monthly checks can be as much as 76% more than if you are 62. It’s a source of income that will automatically adjust for inflation on its own, and it will be there as so long as you do.
Those who choose to wait even longer than that will have higher benefits. Though there is the possibility that you can pass away before you get to enjoy any of it, research suggests it makes more sense to wait. A study conducted by Sita Slavov and John Shoven, professors at George Mason University discovered that waiting longer for Social Security benefits is better, even for a group more likely to die around their 60s. It’s especially accurate concerning couples where one is the sole income earner. Slavov adds that breadwinners can pass on their Social Security benefits to their spouse if they pass on before they do.
The average American doesn’t wait until retirement to file for Social Security benefits. Another study Slavov conducted with colleagues from the US Treasury Department and Stanford University found that a lot of retirees have the option to take money from their savings account. However, they often decide not to follow through with it. That same study looked into taxes for American residents born in 1940.
They discovered that just over 30% of individuals who file to get their social security benefits early, also had two years worth of assets in individual retirement accounts. Around 25% had enough expenses to satisfy up to four years of social security benefits. These retirees had additional savings, pensions, and investments available to them though the researchers weren’t able to measure it.
Even though most retired people have means, they believe that it’s a better option for them to file for Social Security benefits. When you decide to wait to file for your Social Security benefits, you are all but guaranteed a payoff, and you will be protected from inflation.
On the other hand, investments in IRAs can be extremely unpredictable. Is there a reason where Americans decide to touch their Social Security benefits so soon? There are many that believe it is a better for them to leave their IRA’s alone so they can carry it over to their offspring. You would not be able to do the same with Social Security after you are deceased.
There are also others who believe using their benefits early is justifiable because they are genuinely concerned about their well-being. Slavov’s studies showed that around 80% of people who filed early had a higher possibility of a short life and die around 66 compared to those who file for benefits after the minimum retirement age. According to the study, individuals who file earlier than they should typically feel unhealthy and are doubtful that they will be alive by the time they’re 75.
Slavov admits that even if you do feel great health-wise, you still shouldn’t spend your entire IRA first to and use Social Security afterwards for the rest of your life. She mentioned that doesn’t want to advise people to wait, that it varies from person to person, such as their medical history, current health situation, as well as how much money they have saved for retirement.
Nevertheless, in most cases retirees would still have a nicer Social Security check if they waited a bit longer. The main point is that there are a lot of early filers who underestimate their health and how long they will live, or leave their spouses with inadequate income when they die. It’s vital to be strategic and not simply file for benefits because you stopped working at a job.