To File, or Not to File

soc sec JennA modern-day Hamlet might ask…“To File, or Not to File (at age 62 for Social Security)…., that is the question!”

What makes this question difficult to answer with any degree of certainty is that everybody’s situation is different. For instance, some people have no other choice but to take Social Security at 62 while others can wait, but might not want to for various reasons.

You must consider a few things. If you plan on taking your Social Security Benefits starting at age 62, the benefit amount will be lower than if you wait to take it at age 66 (or your full retirement age). There is a built-in penalty for starting to collect it prior to your full retirement age in the form of “reduced benefits.” The math is pretty straight forward:  For every year you delay past age 62, your benefit will increase approximately 6%-8% per year depending on your birth year. Remember though, this accrual stops at age 70, so there is really never any reason to delay collecting your benefits past the age of 70.

Typically, once you begin taking your benefits, you have “locked in” that level of benefit and it is extremely difficult, if not nearly impossible, to “re-do” it so that later on you can get a higher benefit. Therefore, if you start taking it at 62, you will have “locked in” your benefit which is about 25% lower than the benefit would be at your FRA (full retirement age) of 66.

Why then would you want to turn on the spigot at 62?  Well, if you have a family history of poor health, or if you’re in poor health, then taking it at 62 could be a good decision. However, if you have a family history of longevity and/or you’re in very good health, then waiting as long as possible to file and collect might be the better option so that you “lock in” that higher, more-lucrative benefit which will last for the rest of your life.

There really is no clear set test of whether claiming at 62, 66, 70, or any age in between is the best option. Also, it’s impossible to say which is the best option in your case is without finding out additional information about your overall financial picture. But please note:  If you postpone past age 65, don’t forget to sign up for Medicare. In some cases there may be a delay in coverage and it could cost more….please consult (https://www.ssa.gov/planners/retire/delayret.html). This is by no means an exhaustive review or meant to be what you should base your filing decisions on. Your best bet is to speak with a Certified Financial Planner to help you answer questions like these.

07-MFI Staff-SteveSteve Scott is a Senior Financial Advisor with Manchester Financial, an Investment Counsel/Wealth Management firm located in Westlake Village. For more information call 800-492-1107.

This material is provided for general and educational purposes only, and is not legal, tax or investment advice. For each strategy or option mentioned, there are detailed tax rules that must be followed.

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