Will he retire soon? 3 things to consider before claiming Social Security | personal financing

(Christy Pepper)

Many retirees assume that claiming Social Security benefits right away makes sense for them. But the truth is, it’s not always a good idea to start getting these payments once you leave the workforce.

To decide if applying for Social Security checks is the right option for you, there are three important questions to ask yourself. This is what they are.

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1. Will a claim reduce your benefits?

If you’re considering a Social Security claim, you’ll first want to understand if your decision will end up lowering the monthly income you receive.

This is a possibility that you will only receive your standard monthly Social Security benefit if you get your first check at an age specified as your full retirement age. The FRA is based on your date of birth and between 66 and 4 months and 67. If you start payments at this exact age, you will receive a Basic Insurance (PIA), which is based on average wages over the course of your career. If you wait until after FRA, your PIA will increase, and if you start early, it will diminish.

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You can calculate how your standard benefits will change based on your claimed age by determining your financial assessment and then applying the following penalties or credits to your base deposit:

  • Reduce your payments by five times the 1% for each of the first 36 months in which you claim benefits before your FRA account.
  • Reduce your payment by five over twelve additional 1% per month if you claim more than 36 months ago.
  • Add two-thirds of 1% to your standard benefits for each month that you delay your claim for benefits outside of the FRA.

If this formula is confusing, you can also log into your Social Security account online where you can find estimates of benefits at different claim ages. It is important to know that claiming early will permanently reduce benefits, so make sure you agree with this choice before beginning the benefits check.

2. Can you afford to defer your claim?

If you’re committed to retiring soon, you should also consider what your budget would look like without the arrival of your Social Security checks. You need to maintain a safe withdrawal rate and not take a lot of money out of savings too quickly, so think about how much income your retirement investment will actually provide.

If that’s not enough without Social Security checks, you may have to claim benefits even if you’d prefer not to do so right away. Starting Social Security earlier than planned can be better than drying up your nest and ending up relying on your retirement benefits if they aren’t enough to live on their own.

3. Will it work?

Finally, you’ll want to consider whether or not you’ll be working in retirement. If you are, you need to know the business rules while getting Social Security checks.

If you work while receiving payments and are under full retirement age, you may end up having some of your benefits temporarily forfeited once your income exceeds a certain threshold. There is no reason to start checks just to stop getting them due to high profits.

By asking yourself these three questions, you can decide whether going forward with a Social Security claim makes sense or whether it’s best to hold off applying for benefits a little longer. Remember that you can retire without Social Security, but you should only do so if you can comfortably afford it without draining your savings too quickly.

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