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A Timeline for Social Security Benefits

If you have just begun saving for retirement in your 50s, one thing you will want to start looking into are your future options for collecting Social Security benefits. It’s a little known fact that timing is everything when it comes to filing for Social Security, and because the arcane rules the government has in place for Social Security are fairly complex, discussing it with your financial advisor should definitely be part of your overall retirement planning strategy.

Here’s another little known fact: Social Security retirement benefits are based on the highest 35 years of inflation-adjusted wages you have earned over your lifetime. Social Security benefits are highly progressive; in other words, the benefits increase quickly up to a set amount, and then continue climbing more slowly at “bend points” beyond that amount until you reach age 70.

If you are hoping to start saving for retirement in your 50s, you need to understand how Social Security benefits work. Here is a chart that illustrates the monthly Social Security benefits for a hypothetical husband and wife, Mr. and Mrs. Jones; in this scenario, Mr. Jones has been the high wage earner.

If Mr. and Mrs. Jones file for Social Security at the earliest allowable time (age 62), their benefits will look like this for the next eight years:

Once they reach age 70, their benefit amounts remain fixed.

Again, this is a scenario in which the couple decides to file for Social Security at the earliest age allowed; by law, this is age 62. Although it is permissible to file for Social Security at 62, that is not what the government regards as full retirement age and therefore, people who file for it that early can only receive approximately 70% of the monthly benefit. Here is a quick reference guide to how much of the monthly Social Security benefit can be received, depending on the age someone files:

  • File at 62 – Receive 70%
  • File at 63 – Receive 75%
  • File at 64 – Receive 80%
  • File at 65 – Receive 86.7%
  • File at 66 – Receive 93.3%

Full retirement age, for those born after 1937, is now 67. So if Mr. and Mrs. Jones wait until they turn 67, they can retire with full, unreduced Social Security benefits; the chart above illustrates what that amount is for each of them.

But what if Mr. and Mrs. Jones wait even longer to retire – say, age 68? Their delay will result in increased Social Security income, because they will retire with 108% of their monthly benefits. By delaying benefits just 12 months after the full retirement age, a person can actually retire with higher Social Security income. For the rare person who delays retirement to age 70, that 48 month delay will result in retiring with 132% of the monthly Social Security benefit. Remember: After age 70, the increases stop, whether you have delayed retirement or not.

Now, are we recommending that people delay retirement just to receive increased Social Security benefits? Not necessarily. If you are like most people reading this, you are most likely interested in saving for retirement in your 50s or earlier so that retirement can be as early and as comfortable as possible (something addressed in this recent radio interview).

This is for your informational purposes only, so you can understand the way Social Security works and see what your options will be if Social Security is all you have to rely on for retirement income. As you can see, Social Security is helpful – but in no way is it enough to live on exclusively. In order to retire comfortably, it is imperative to create multiple income streams and treat Social Security benefits like a supplement to that income. If you are saving for retirement in your 50s and you want to have more than Social Security benefits to look forward to, a CERTIFIED FINANCIAL PLANNER™ professional can help you learn how to build retirement income through prudent strategies.

These concepts were derived under current laws and regulations. Changes in the law or regulations may affect the information provided. All numeric examples and any individuals shown are hypothetical and were used for explanatory purposes only. Actual results may vary.