Morgan Stanley
  • Wealth Management
  • May 23, 2023

Social Security Benefits: It Can Pay to Wait

Maximizing your Social Security retirement benefits can help you achieve your financial goals.

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If you’ve built a healthy nest egg for your retirement, you may not be relying on Social Security benefits to cover expenses when you stop working. Still, there are important considerations to keep in mind around when and how to claim Social Security that can help you make the most of your benefits for retirement and other financial goals. 

Many people have both practical and emotional considerations regarding when to claim Social Security, a system many of us pay into our entire working lives. Still, you should consider your complete financial picture in retirement before making such a big decision.

Maximizing your benefits, which may include postponing when you begin claiming, can help you in achieving other financial goals in retirement, such as estate planning and gifting, paying for health care expenses and giving back through philanthropy. Here’s what to keep in mind when considering when to claim and how to use your benefits. 

The Basics of Social Security Benefits

Who can claim Social Security benefits? Generally, you’re eligible to receive benefits if you’ve worked and paid Social Security taxes for at least a combined 10 years prior to claiming your retirement benefits. For each year you work and pay into Social Security through taxes, you earn a minimum of four credits toward your benefits, meaning you need a minimum of 40 credits to qualify.

Though you can begin collecting Social Security benefits as early as age 62, doing so may cost you, as your permanent benefit amount could be reduced by 25% to 35%. At Full Retirement Age (FRA), which for most retirees is 66 or 67, you will be entitled to full Social Security benefits.

If you can wait even longer to claim you can further boost how much you will receive each month. Your benefit may increase by an additional 8% each year you delay past your FRA, up to age 70. The maximum benefit for those who begin claiming at age 70 is currently $4,555 a month, $1,983 a month more than for those who start claiming at age 62.1 It is important to note that there is no additional advantage to delaying collecting benefits beyond age 70.

Social Security and Your Other Financial Goals

If you don’t need your Social Security benefits to live on in retirement, the money can be put toward other financial goals. For example, your benefits can be used to assist family members financially, can support your overall charitable giving or could be used to help defray expenses that may crop up in retirement.

The benefits can help fund a broader gifting strategy for heirs. You can use the funds to supplement outright gifts made to family members or use the money to help fund a 529 education savings plan for grandchildren or even great-grandchildren.

Social Security benefits can also be used to help fund retiree health care costs or pay for a long-term care insurance policy, both of which can be expensive even for those with a sizable nest egg.

Also, knowing you will draw steady income from Social Security may free you to invest some of your retirement nest egg more aggressively than you would have otherwise, possibly generating higher gains. Unlike other potential sources of retirement income, such as drawing down from your own savings, Social Security provides a source of funds that are generally indexed to inflation and will last as long as you live. 

The Social Security Decision

While no one has a crystal ball to see into the future, your personal situation should play into when you look to claim benefits. Health issues or other concerns about longevity may be a catalyst for some to claim their benefit sooner.

How and when you claim Social Security benefits is a complex decision that may have important income and tax implications. Be sure to discuss your situation with your Tax and Financial Advisors to make the best possible decision for you and your family. 

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