Is retirement on your radar? You may even be planning to permanently leave the job market in the coming year. If so, congratulations! You’ve certainly earned the right to focus on yourself instead of your work.
Before you call it quits and initiate your Social Security retirement benefits in 2025, though, there’s one thing you’ll want to do: Weigh the financial costs of claiming benefits now instead of waiting.
Do you miss the morning spoon? Breakfast news delivers it all in one fast, silly and free daily newsletter. Register for free »
You can receive social security benefits from the age of 62. However, you won’t receive as much money as you could have. Anyone who waits until his or her full retirement age (between 66 and 67, depending on year of birth) will see larger monthly checks.
The difference can be significant. Getting this four or five year head start on your benefits will permanently reduce your payments by as much as 25% to 30%, depending on your age.
The penalty decreases as you get closer to your full retirement age (FRA). For example, if you claim 12 months before you reach full retirement age, your monthly benefits will only be reduced by 6 2/3% of what your payments would be at FRA.
Given that the average Social Security check is currently just over $1,900, this potential difference is still not a small change for most people. It could mean a few hundred dollars a month.
That said, you should also know that waiting until after you reach your designated FRA will make your final payments even bigger. Anyone who waits until age 70 to file for benefits will see monthly payments that are between 15% and 25% higher than they would receive at official full retirement age. The table below illustrates the major financial difference between claiming early or deferred benefits.
|
Year of birth |
Full retirement age |
Percentage of full benefit by age at first claim |
||||||
|---|---|---|---|---|---|---|---|---|
|
1943-54 |
66 |
75 |
80 |
86 2⁄3 |
93 1⁄3 |
100 |
108 |
132 |
|
1955 |
66, 2 months |
74 1⁄6 |
79 1⁄6 |
85 5⁄9 |
92 2⁄9 |
98 8⁄9 |
106 2⁄3 |
130 2⁄3 |
|
1956 |
66, 4 months. |
73 1⁄3 |
78 1⁄3 |
84 4⁄9 |
91 1⁄9 |
97 7⁄9 |
105 1⁄3 |
129 1⁄3 |
|
1957 |
66, 6 months. |
72 1⁄2 |
77 1⁄2 |
83 1⁄3 |
90 |
96 2⁄3 |
104 |
128 |
|
1958 |
66, 8 months. |
71 2⁄3 |
76 2⁄3 |
82 2⁄9 |
88 8⁄9 |
95 5⁄9 |
102 2⁄3 |
126 2⁄3 |
|
1959 |
66, 10 Mon. |
70 5⁄6 |
75 5⁄6 |
81 1⁄9 |
87 7⁄9 |
94 4⁄9 |
101 1⁄3 |
125 1⁄3 |
|
1960 and later |
67 |
70 |
75 |
80 |
86 2⁄3 |
93 1⁄3 |
100 |
124 |
Data source: Social Security Administration.
Your marching orders, therefore, are to contact the Social Security Administration — online, in person, or by phone — and compare all your benefit options as they currently stand. You may find that there is a good reason to continue working for at least another year. Or you may not get enough benefit from keeping your job until age 70.
There is no additional benefit to waiting to file once you turn 70. In fact, there is a little incentive to do it as soon as possible after you turn 70 years old. The Social Security Administration will only pay six months of retroactive benefits. If you wait seven months or more to file a claim, you’re leaving money on the table that you can never get back.
Of course, comparing your expected Social Security payments isn’t the only thing you’ll want to consider if you haven’t done so yet but want to do so soon. Other tasks you’ll need to do before you retire include making sure you can receive these direct deposits in an easy way (no more paper checks!) and making sure the Social Security Administration’s information about your income history is correct. Errors are possible even if you paid Social Security taxes on this income while earning it.
Perhaps the most important chore to cross off your pre-retirement checklist is updating or creating a plan for your money once you retire. Do you need a lot of cash sitting in a low-interest checking account, or can you invest some of your money in higher-yielding money market funds that are still relatively liquid? Is your portfolio still too growth-oriented? If so, now is the time to reshape it; A lot can happen to the market over the course of just a few months. You may also consider purchasing a supplement to Medicare coverage if you are currently covered by a workplace health plan.
Whatever your future holds, it’s never too early to start fact-finding and money-oriented planning. Just knowing your numbers is half the battle.
The message is to manage your money effectively during your retirement other half.
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could give your retirement income a boost. For example, one simple trick can earn you as much as $022,924 more… every year! Once you learn how to maximize your Social Security benefits, we think you can retire confidently, with the peace of mind we’re all looking for. Click here to find out how you can learn more about these strategies.
Check out the “Social Security Secrets” »
The Motley Fool has a disclosure policy.
If I could tell all retirees one thing about Social Security in 2025, I’d say do this before you claim benefits. originally published by The Motley Fool
