The Social Security Administration projects a 2.2% increase for those receiving retirement benefits in 2018. While this is actually the biggest increase in years – 2017 saw an increase of only 0.3% and 2016 social security recipients saw no increase at all – it’s not likely to bump you into a new tax bracket.
In dollars, the projected increase adds up to about $28 per month for the average social security recipient.
As my grandfather, himself a longtime social security beneficiary, is fond of saying, “it’s better than a stick in the eye”.
Delaying benefits more important than ever. An extra $28 a month is unlikely to change your life. If you really want to boost your social security income, consider delaying benefits as long as possible.
For example, a person born in 1957 could start taking their benefit as soon as 2019, when they turn age 62. But if they begin taking benefits early (at age 62) their monthly social security income would be reduced by as much as 27.5% from their full retirement benefit (66 years and 8 months for a person born in 1957). What’s more, any spousal benefit their spouse would be entitled to may be reduced as well.
How much your benefits may be reduced depends on how old you are and when you actually start to receive benefits. For a chart from the Social Security Administration that details benefits by year of birth, click here.
Waiting until normal retirement age entitles you to receive your full monthly benefit. However, delaying your benefits until age 70 boosts your social security income by an additional 8% per year. After age 70, there is no additional benefit to waiting.
It adds up. It’s tempting to take benefits as soon as possible. After all, you worked hard for a long time to earn those benefits. However, taking benefits early could be a financial mistake. The delayed retirement credits can add up to some significant dollars by the time you turn 70.
Assuming the average retiree receives about $16,320 in annual benefits at full retirement age (according to the Social Security Administration), starting benefits at age 62 would result in a reduced annual benefit of about $12,240. (Early benefits for people born between 1943 and 1954 are reduced by 25% at age 62).
Since the life expectancy for a person at full retirement age is about age 84 or 85 (depending on exactly when you were born and if you are a man or a woman) you might expect to receive benefits for 22 years (age 84 minus your current age of 62) for a total lifetime benefit of $269,280.
Not too bad. However, if a retiree waits to age 70 to receive benefits the annual social security benefit increases to about $22,202 – an increase of $9,962per year. Obviously, this results in more money per month, but you will receive benefits for fewer months.
The big question: do delayed credits really add up to more social security benefits over your lifetime?
If you multiply $22,202 per year by 14 years (the difference between age 70 and average life expectancy 84), your total lifetime social security benefit is $310,828 – an increase of over $41,548. So assuming you live to normal life expectancy, delaying the start of social security benefits will likely provide you with more money per month, and more money over your lifetime.
Other factors to consider. There are many factors that go into the decision as to when you should start receiving social security benefits including the effect your decision may have on any benefits your spouse may be entitled to, if you are still working, how long you expect to live, other income producing assets you may have, your income tax bracket, and whether you can even afford to delay receipt of your social security benefits in the first place.
Social security planning can be complicated. What works best for your neighbor may not be the right strategy for you. At about age 60 you should begin researching your options and educating yourself on how social security works and develop a customized retirement income plan designed to meet your needs.
For more information, check out these resources and talk to your financial advisor.
Get What’s Yours, by Laurence J. Kotlikoff