Social Security Collection: Early or Delayed?

Seniors across the United States are planning to rely on Social Security income after they retire. Recent reports, however, have indicated that over 40% of seniors claim their funds almost immediately, resulting in a loss.

According to Hans Scheil, CEO of Cardinal Retirement Planning, it’s behavioral finance.

“They want the security of knowing a government check is coming instead of just living on their assets,” he explained.

Other reasons that people may opt for a loss are concerns of government cuts, moves or other financial struggles. Before deciding on a course of action, it’s important to consider all the information.

First, the monthly payment amount drops if you collect your benefits early. Thinkadvisor.com explained that “for anyone with a full retirement age of 66, collecting at 62 ½ nets a 25 percent lifetime benefits reduction, while delaying until 70 offers a 32 percent credit.”

Furthermore, penalties are heavier for younger retirees. People born in 1960 or later take a 30% decrease if they draw their funds at age 62, and gain 24% if they collect at 70. Planning ahead can help you delay your withdrawal without risk.

There are cases where an early collection makes sense, however. For example, James Sullivan of Connecticut-based Essex Financial explains: “If, for some reason, someone believes they won’t live until life expectancy, it absolutely makes sense to draw early.”

This is seen in cases where a family has a history of early death, or someone has been diagnosed with a terminal illness. It’s important to plan for a wide range of scenarios, though, such as a spouse, or long term care if the illness does not progress as expected.

Though choices should be made on a case-by-case basis, most people would benefit more from a delayed collection. If you are not sure what is best for you and your family, or you want to understand the process a bit more, local advisory firms or consultants can offer additional insight into your situation.