Last week’s post began a discussion regarding the far-reaching and long-term consequences of the Social Security claiming decision. It concluded by stating that the choice of a Social Security starting age will differ depending upon each person’s unique circumstances.
Why is the choice of a Social Security start date so important? There are several reasons, all of which can be divided into two categories: (a) Those dictated by Social Security rules and regulations and (b) Other fianncial reasons.
Reasons Dictated by Social Security Rules and Regulations
Social Security rules and regulations affecting the choice of a start date include the following:
- Benefit amounts will increase by 7% – 8% each year that the start date is deferred between age 62 and 70, excluding cost-of-living adjustments (“COLA’s”).
- Social Security COLA amounts will be greater for those who defer their start date.
- If married, it will affect the amount of one’s spousal Social Security benefit.
- If married, it will affect the amount of one’s survivor’s Social Security benefit.
- With two exceptions, it’s an irrevocable decision.
Other Financial Reasons
Other financial reasons why the choice of a Social Security start date is so important include the following:
- It can affect the choice of one’s retirement age as well as that of one’s spouse if married.
- It may impact sustainability of retirement income and assets for 30 to 40 years.
- It will influence the amount and timing of withdrawals from retirement and nonretirement investment assets.
- It can affect the amount of Social Security benefits that are taxable each year.
- It will directly affect one’s overall income tax liability and tax planning.
As you can see, there are many things riding on the choice of one’s Social Security starting age, most of which won’t become apparent until several years, or even decades, after the claiming age decision has been made. The age at which you begin receiving Social Security retirement benefits may possibly be the most significant factor in your ability to sustain financial security throughout retirement. Given the importance of this decision, sit down with your retirement income planner before going to the “Boldly Go Online to Retire – It’s So Easy!” section of the Social Security Administration website and clicking the “Apply for Retirement” link.
Robert Klein, CPA, PFS, CFP®, RICP®, CLTC® is the founder and president of Retirement Income Center in Newport Beach, California. Bob is also the sole proprietor of Robert Klein, CPA. Bob applies his unique background, experience, expertise, and specialization in tax-sensitive retirement income planning strategies to optimize the longevity of his clients’ after-tax retirement income and assets. He does this as an independent financial advisor using customized holistic planning solutions based on each client’s needs and personality.