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Making decisions around Social Security can be very confusing and complex for most individuals,
and so there are a number of factors that can help people simplify the decision-making
process. The first is are you going to work, and do you have other sources of income that
could fill the gap that would enable you to wait and take Social Security later? If you're
working, having earnings can reduce the benefits you receive, so that likely doesn't make much
sense. The second is your longevity prospects, meaning how long you might live. And a lot
of that is driven by family history. So if you have longevity in your family and you're
in really good health, the likelihood of you living a long time is high. And, therefore,
to get the most out of Social Security, it might make sense for you to claim as late
as you possibly can. But that also needs to be balanced by what
we say is the third factor, and that is desire for income now versus later. That's a lot
of what makes the complexity of Social Security overwhelming to people. It's because a benefit
they can turn on today versus the tradeoff of waiting and taking it later, and that's
really when things are unknown. So if you prefer to have more income now, you just need
to be cognizant that you're locking in a lower benefit and likely won't maximize Social Security
over your lifetime. But for a lot of individuals, that is a tradeoff that they're willing to make.
And then, lastly, I think it's really important
to look at the earnings, particularly if you're married - earnings differential between spouses
as well as age differential, because claiming Social Security is really a joint decision,
and you need to take into consideration not just your own benefit and longevity prospects,
but also that of your spouse, to make sure that as a household you're making the best
choices around Social Security. The Social Security system incents individuals
to take the benefit later. And what I mean by that is that, today, the normal retirement
age for individuals that are close to making their claiming decision is typically age 66.
And at age 66, you get 100% of the benefit that you've accrued over the course of your
earnings years. If you choose to take it early, so early eligibility begins at age 62, you're
locking in today about 75% of that benefit. Because if you're taking it early, you get
a lower payout, beginning at age 62. If you wait again until 66, you get 100%.
But, then, Social Security says, hey, if you're going to wait until 70, we'll give you an
8% increase in the amount of income that we'll provide to you. And people need to recognize
that the cost of living adjustment is above and beyond that. So it's actually in excess
often of 8% between 66 and 70. At age 70, there is no further benefit to
waiting. That's really the bookend in terms of benefit accrual. And so, for someone who's
taking it early, they just need to remember that they're locking in 75% of their benefit
versus if they wait all the way 'til age 70, when they get about 132% of their benefit.
And what we know is that if your goal is to maximize the amount that you as an individual
get out of Social Security, if you think you're going to live beyond the age of 80, you're
going to get the most out of Social Security if you wait as long as possible until age 70.