Introduction: The Importance of Timing Social Security Benefits
For many retirees, Social Security benefits represent a significant portion of their income. However, the decision of when to claim benefits can have a lasting impact on their financial well-being. Claiming too early can reduce lifetime benefits, while delaying can increase guaranteed income—but it’s not always a one-size-fits-all solution.
As a fiduciary financial advisor, guiding clients through this complex decision-making process is vital. In this guide, we’ll explore:
How claiming age affects monthly and lifetime benefits
The pros and cons of early vs. delayed claiming
Key factors to consider when helping clients determine the right timing
- How Claiming Age Impacts Social Security Benefits
The age at which clients claim Social Security directly influences the size of their monthly payments. Here’s how it works:
Full Retirement Age (FRA):
- For individuals born in 1960 or later, FRA is 67 years.
- Claiming before FRA reduces monthly benefits.
- Delaying beyond FRA increases monthly payments.
Benefit Impact by Age:
- Age 62: Claiming at 62 (earliest eligibility) reduces benefits by approximately 25–30%.
- Age 67: Claiming at FRA offers 100% of the client’s entitled benefits.
- Age 70: Delaying until age 70 increases benefits by 8% per year after FRA, resulting in 24% higher monthly income.
Financial Advisor Tip:
Use Social Security benefit calculators to illustrate the long-term impact of early vs. delayed claiming, helping clients make informed decisions.
- The Pros and Cons of Claiming Early vs. Delayed Benefits
Helping clients weigh the advantages and disadvantages of early vs. delayed Social Security benefits is essential for tailoring their retirement plans.
Claiming Early (Age 62–66)
Pros:
- Immediate access to monthly income.
- Suitable for clients with health concerns or shorter life expectancy.
- Provides cash flow for early retirement goals.
Cons:
- Reduced lifetime benefits (up to 30% less).
- Increased risk of outliving savings.
- May limit the potential for spousal or survivor benefits.
When to Recommend Early Claiming:
- Clients with chronic health issues or lower life expectancy.
- Individuals with limited savings who need early income.
- Clients aiming for lifestyle goals in early retirement.
Claiming at Full Retirement Age (FRA)
Pros:
- Clients receive 100% of their benefits.
- Balanced approach for those with average life expectancy.
- Provides flexibility for working clients who want to avoid benefit reductions.
Cons:
- Misses out on the delayed retirement credits available after FRA.
- May reduce potential survivor benefits for a spouse.
When to Recommend FRA Claiming:
- Clients in good health but who want to access benefits without reduction.
- Those with moderate savings who can afford to wait until FRA.
- Clients planning to work part-time without reducing benefits.
Delaying Benefits (Age 70)
Pros:
- Benefits increase by 8% per year after FRA, leading to higher monthly payments.
- Provides greater financial security for longer retirements.
- Enhances survivor benefits for spouses.
Cons:
- Requires clients to rely on other income sources until age 70.
- May be less beneficial for clients with shorter life expectancy.
- Misses out on benefits earlier in retirement.
When to Recommend Delaying Benefits:
- Clients with strong longevity potential (family history of longevity, good health).
- Those with sufficient savings to delay Social Security.
- Individuals aiming to maximize spousal or survivor benefits.
- Key Factors Financial Advisors Should Consider
When advising clients on Social Security timing, it’s essential to assess their individual circumstances and long-term goals.
Health and Longevity:
- Clients with chronic health issues may benefit from early claiming.
- Those with family longevity may benefit from delaying.
Other Income Sources:
- Clients with pensions, investments, or annuities may have the flexibility to delay benefits.
- Those with limited savings may need earlier access to Social Security.
Spousal and Survivor Benefits:
- Spouses with lower lifetime earnings may benefit from the higher-earning partner delaying benefits.
- Survivor benefits increase when the higher-earning spouse delays Social Security.
Tax Implications:
- Social Security benefits are subject to federal income tax if combined income exceeds $25,000 (individual) or $32,000 (married).
- Tax-efficient withdrawal strategies can help reduce tax liabilities.
Financial Advisor Strategy:
Use personalized financial modeling to show clients how different claiming ages impact their income, taxes, and portfolio longevity.
- Create a Comprehensive Social Security Strategy
As a fiduciary financial advisor, you can help clients create a customized Social Security strategy by:
Incorporating Social Security with Other Income Sources:
- Blend Social Security benefits with withdrawals from tax-advantaged accounts for a balanced income stream.
- Use tax-efficient withdrawal sequences to minimize taxes.
Modeling Different Scenarios:
- Use financial planning tools to simulate early, FRA, and delayed claiming scenarios.
- Show clients the lifetime income impact of each option.
Advising Couples on Coordinating Benefits:
- Instruct higher-earning spouses to delay benefits for larger survivor payouts.
- Optimize claiming strategies to maximize household income.
Key Takeaway: Timing Is Everything
Deciding when to claim Social Security benefits is one of the most important financial decisions your clients will make. As a fiduciary financial advisor, you can help them:
Understand the long-term impact of early vs. delayed claiming.
Customize strategies to match their financial goals and longevity.
Use diversified income streams to reduce Social Security reliance.
By offering expert guidance, you empower your clients to maximize their Social Security benefits and achieve financial security throughout retirement.
Global View Capital Management (GVCM) is an affiliate of Global View Capital Advisors (GVCA). GVCM is a SEC Registered Investment Advisory firm headquartered at N14W23833 Stone Ridge Drive, Suite 350, Waukesha, WI 53188-1126. 262.650.1030. Ryan Peca is an Investment Adviser Representative (“Adviser”) with GVCM. Additional information can be found at www.adviserinfo.sec.gov Global View Capital Insurance Services (GVCI) is an affiliate of Global View Capital Advisors (GVCA). GVCI services offered through Experior Financial Group, ASH Brokerage, and/or PKS Financial. GVCI is headquartered at N14W23833 Stone Ridge Drive, Suite 350, Waukesha, WI 53188-1126. 262-650-1030. Ryan Peca is an Insurance Agent of GVCI.
These views do not necessarily represent the views of GVCM or any of its affiliates. Investment involves risk.