June 03, 2018
Every week, Simply Money’s Nathan Bachrach, Ed Finke and Amy Wagner are answering your financial questions. If you, a friend, or someone in your family has a money issue or problem, please feel free to send those questions to firstname.lastname@example.org
Carl in Clermont County: I’m 61 and trying to figure out when to take Social Security. I like the idea of claiming at 62 because I want to get my money as soon as possible. Does this thinking make sense?
Answer: Generally speaking, Simply Money Advisors recommends waiting as long as possible (ideally until age 70) to start claiming your Social Security benefit.
However, almost half of Americans choose to take Social Security at age 62, which is the earliest age at which you can claim. The downside of taking Social Security before your full retirement age (FRA) is that you’ll receive up to 30 percent less in monthly benefits. Think of it like you’re penalizing yourself for claiming early.
On the other hand, if you wait to claim, you’ll receive your full benefit amount plus an additional bonus for waiting – an extra eight percent per year you wait past your FRA (up until age 70). There aren’t many places these days where you can get a guaranteed return of eight percent a year, yet, just four percent of women and two percent of men wait until age 70 to claim their benefits.
Of course, if you lose your job, are having trouble paying the bills, or have a serious health issue, then you may have no choice but to take your benefit early. But if you’re in good health and have saved well for retirement, you should consider waiting as long as possible. The increase in benefit can make you feel more secure in retirement.
And keep this in mind: If your desire to claim early is driven by a fear that Social Security will ‘go broke,’ so you want to get your money as soon as possible, that thinking should not be a deciding factor in when to start claiming. Yes, the program will face some funding challenges starting in 2034 if nothing is changed, however, the program can never truly go broke if there are current workers paying into the system.
When to claim Social Security is a very personal decision, and there can be a lot of moving parts involved. Simply Money Advisors recommends working with a trusted financial planner to help establish a personalized financial plan for your next few years and into retirement. He or she can help you select the best strategy for maximizing your Social Security benefits.
The Simply Money Point is that if you’re able, try waiting as long as possible to claim your Social Security benefit. Even though it’s tempting to take your benefit early, showing some patience can lead to a larger monthly check.
Peter and Hillary from Amelia: We’re both 54 and got a late start saving for retirement and are feeling very behind, especially when we always see that you should have $1 million or more for retirement. Is there any way we can catch-up?
Answer: We know that you might be feeling a little overwhelmed if you’re behind in saving, but don’t get too discouraged just yet.
There’s a common misconception that everyone needs at least $1 million to $2 million to retire comfortably, but that might be way more than the two of you will ever need. Remember, everyone has a different financial situation that requires different financial needs. Your lifestyle and budget is entirely different from your neighbor’s, or your sister’s, or your best friend’s, so don’t go comparing yourself to anyone else. The first step you need to take is to figure out your retirement goals and budget – this will help you get a starting point for how much you’ll actually need.
But we will be frank: You are probably going to have to start saving more from every paycheck, and that might mean making some sacrifices. Take a long hard look at your household budget: is there anywhere that you can cut back? You may also want to pay down any debt. This could be your mortgage, a car, credit cards, or personal loans. Eliminating these types of expenses now will help ease your retirement budget. Picking up a side gig to bring in more income is also an option, as well as trying to work longer (though this isn’t always feasible, so don’t bank too much on this alternative).
Plus, use IRS rules to your advantage. Anyone who is over the age of 50 is allowed to start making “catch-up contributions” to 401(k)s and IRAs every year. This means, in addition to the $18,500 you’re allowed to save in your 401(k) for 2018, you can save an extra $6,000; for IRAs, it’s an additional $1,000 on top of the current limit of $5,500. Once you turn 55, you can make an annual catch-up contribution of $1,000 to your Health Savings Account.
What’s also important to keep in mind is that just because you’re getting a late start on saving for retirement doesn’t mean you should make it up by taking on more investment risk. You don’t want to put yourself in a position where you and your spouse feel uncomfortable with market turbulence.
The Simply Money Point is that it’s never too late to plan for retirement. Determine how much you’ll need to retire and make a financial plan to achieve your financial goals. Sitting down with a CERTIFIED FINANCIAL PLANNER™ or a Charter Financial Consultant® is a great starting point.
Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Nathan Bachrach and Ed Finke and their team offer financial planning services through Simply Money Advisors, a SEC Registered Investment Advisor. Call (513) 469-7500 or email email@example.com.