As I've dealt with clients and nonclients alike over the last three decades, one of my ongoing observations is the lack of formal and informal financial education we receive as a society when it comes to how to recognize and plan for critical life-changing financial events in our lives. This is especially true as it pertains to one of the most, if not the most, important financial decisions most of us will make during our lifetime, i.e., when to begin receiving Social Security retirement benefits.
By way of background, although you may apply to begin receiving Social Security retirement benefits at age 62, your benefit will increase each month that you defer your start date until age 70. While it's tempting to turn on the faucet at age 62, this may not be the best age to begin receiving benefits if you're concerned about maximizing and prolonging your retirement income stream and that of your spouse if you're married.
The timing of the Social Security claiming age decision occurs at the crossroads of most peoples lives when many decisions need to be made that will affect the financial and emotional success of one're retirement years. It comes at a time when:
- The financial and psychological security of full-time employment will be ending in the near future for most people.
- The sequence of investment returns can make or break one's retirement if not properly planned for.
- There will be a prolonged period of financial uncertainty without the associated safety of a paycheck, including unknown investment performance, inflation, and income tax rates.
- Health begins to decline for many people with escalating health insurance premiums, potential higher out-of-pocket medical costs, and potential uncovered long-term care expense.
Given the far-reaching and long-term consequences of the Social Security claiming decision, it should be a high priority for anyone approaching age 62 to have a professional retirement income planner prepare an analysis as part of a retirement income plan to determine the optimal age to begin receiving Social Security retirement benefits.
The choice of a Social Security starting age will differ depending upon each person's unique circumstances. This will become more evident when you read the reasons why the choice of your Social Security claiming age is so important in Part 2 of this post next week.