The “Great Resignation” is underway, with unprecedented numbers of employees quitting or choosing early retirement. But, not all of those who’ve left their jobs are ready to dip into their Social Security.
Data analyzed from the Washington Post showed that in the 12 months preceding September 2021, the number of workers applying for Social Security benefits fell by 5% despite a 5% increase in retirees aged 65 to 69.
Delaying Social Security benefits can be a savvy financial move, if you’re prepared to do so. Here’s why an increasing number of people are choosing this route and how you can decide if it’s right for you.
Why delay Social Security benefits?
With Social Security, you have the options of taking benefits at age 62, waiting until your full retirement age or holding off on benefits until age 70. If you wait until age 70 to collect Social Security, you can usually qualify for what’s known as a delayed retirement credit (DRC), which means your monthly check will be bigger.
To give you an idea of just how big the difference is, the Social Security Administration indicates that waiting until you reach full retirement age can increase your benefit by 30% compared to what you would receive at age 62. This number is increased by about 32% if you wait until age 70.
That increased amount will extend into the rest of your retirement — and when increases occur due to inflation, they’ll be based on a higher original amount than if you had started receiving benefits earlier. There’s a huge upside to waiting, but sometimes people are in need of immediate cash flow and waiting to delay Social Security benefits isn’t practical. Ask yourself these four questions to decide whether it’s the right time to start taking Social Security.
Question 1: Do you need money now?
Being tight on money puts more pressure on your decision about whether or not to take your Social Security payments. Are you chronically short on money or experiencing a money emergency?
If you plan to continue earning an income in some way but are temporarily stretched, it could be smart to obtain a loan. If you own a home, getting a mortgage or cash out refinancing could be solutions. In fact, many older homeowners have mortgages — a recent survey found 19% of homeowners ages 65 and older still do.
Question 2: What are your options to get cash now?
Even if you’re not a homeowner, there are still ways to access cash if you’re short on money but trying to delay your Social Security benefits.
If you’re able to work, continuing to earn a paycheck — even if it’s part-time — could help supplement your monthly budget just enough so that you can forestall your Social Security benefits. You could also consider participating in the gig economy or starting a small business.
Another option is to see if you qualify for a personal loan. Just be sure to budget for monthly loan payments, which will be due regularly until you repay the loan. If you borrow $20,000 on a seven-year term with an interest rate of 6%, you can use a loan calculator to find that monthly payment would be $292.17. This is important to factor in because your loan will still be outstanding when you’re on a fixed income.
Question 3: Will you rely too strongly on retirement savings?
You might be tempted to hold off on filing for Social Security benefits and resist additional debt such as a mortgage or a loan at the expense of your other retirement savings. That said, you’ll also want to pace any 401(k) or IRA withdrawals to last you for your entire anticipated retirement. If your projections rely on you making heavy withdrawals before you file for Social Security benefits, it might be wiser to file early so you can keep more cash in your retirement accounts.
Remember, the funds in your retirement accounts will continue to earn a return. You might not necessarily want to deplete those accounts too quickly. This is especially true if you retire young. Pew Research shows 50.3% of Americans age 55 and older have retired.
Question 4: Are you in good health?
If you aren’t expecting to have a long retirement, delaying your Social Security benefits might not make sense. First, if you are in poor health and can’t work consistently or require costly health treatments, you could run into financial trouble trying to delay your benefits.
Second, if you aren’t sure how long your retirement will be — whether that’s due to a family healthy history or an ongoing health battle — you might have more to gain by receiving your benefits now since you’ll collect fewer payments if you delay filing.
Deciding when to file for your Social Security benefits is a highly personal decision. While a growing number of retirees are waiting to do so, it still makes sense for others to file when they qualify either at age 62 or at full retirement age. This could be due to a number of health and financial reasons, but what’s most important is that you consider your par.
Jolene Latimer has her Master's in Specialized Journalism from the University of Southern California. She writes about personal finance, marketing and sports.
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