33% of near-retirees plan to claim social security early – here’s why it can be a big mistake | Smart Change: Personal Finance
33% of near-retirees plan to claim social security early – here’s why it can be a big mistake |  Smart Change: Personal Finance

33% of near-retirees plan to claim social security early – here’s why it can be a big mistake | Smart Change: Personal Finance

(Maurie Backman)

Social security serves as a critical source of income for millions of retired seniors. And that’s not necessarily a good thing. These benefits will only replace about 40% of your early retirement income if you are an average employee. But most seniors need about twice as much income to maintain a reasonably comfortable lifestyle.

Therefore, it is ideal to retire with a decent portion of the savings. But if it’s not the boat you’re in, you should at least make it a point to wait for yours full retirement age (OFF) to claim social security, as this is when you are entitled to your full monthly benefit based on your earnings history. If you apply for benefits before OFF, you could end up living a very cash life.

Submission early can lead to a personal financial crisis

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In a recent Allianz Life study33% of near-retirees said they plan to require social security before reaching FRA. And going that route could mean ending with one much lower monthly benefit for life.

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The earliest age to sign up Social Security is 62, so filing at that time is apt to result in an extreme hit for your benefits. Filing a year ahead of time will not have the same drastic effect.

Either way, if you do not have a lot of savings to spend in retirement, then you may want to reconsider your plans to sign up for Social Security before OFF. If you shrink your benefits by claiming them early, you may not have enough money to pay your expenses or maintain a decent quality of life.

It is not even taken into account Cuts in social security, which is very much on the table. In fact, these cuts could come as early as 2035, as that is when the programme’s trust funds are expected to run out, according to a recent estimate.

Imagine that you cut your benefits by applying for social security early, and then the benefits are reduced broadly. All in all, you can look at a very minimal income to live on. And if your backup plan is just to start working part-time, take a step back and realize that it may not end up being possible due to health or mobility issues or lack of job vacancies. (Yes, there are plenty of jobs right now, but we can not be sure that will always be the case.)

This is why it pays to reconsider your plans to file early if you do not have many savings and expect to be heavily dependent on social security when your career is over. Of course, if you have tons of savings, that’s a different story. There is probably no reason to stress about a reduced Social Security benefit if you are approaching retirement with a nest egg of $ 4 million.

However, if you expect social security to be a significant source of income for you, then you might want to force yourself to wait, until OFF or even further, to sign up. That way, you will not cut back on a crucial income stream and be left with the consequences for years to come.

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