Drawing on Social Security income in advance of retirement age is a personal decision that often depends on factors, such as marital status, health, and age.
The benefits include receiving financial relief sooner in retirement when other income sources are unavailable and less stress about the state of the Social Security Trust Fund.
“Claiming benefits early can be an attractive option if you need immediate income or want to retire earlier,” RetireToAbundance.com founder and Certified Financial Planner (CFP) Tyler Meyer told NTD on March 11. “For retirees in poor health, filing early may make sense because it allows them to receive benefits over a shorter period of time.”
The advantage of claiming social security payments early for married retirees is having two social security incomes to depend upon.
CustomFitFinancial.com owner and CFP Chad Gammon recommends a laddering strategy.
“The lower-earning spouse could claim early for immediate income while the higher-earning spouse would ideally delay until age 70,” Gammon told NTD on March 11. “If the high-earning spouse dies early, the lower-earning spouse would receive 100 percent of the deceased spouse's benefit.”
Another advantage of an early draw down is not having to worry about whether the Social Security Trust Fund will be depleted.
That’s because claiming social security income early is not without some disadvantages.
Social Security is reduced by 6.25 percent for every year claimed before full retirement age is reached. SSA dictates that the full retirement age in the United States is 67 for Americans born in 1960 or after.
Each year, from 67 to 70, when Social Security income is delayed, the benefit will increase by 8 percent, but after 70, the increase stops, and delaying the benefit is no longer permitted.
“It can be devastating to take benefits early as claimants will be 'locked-in' to a lower benefit amount for the rest of their lives, which is why most talk about delaying or waiting to turn on social security income,” ARIES Foundation for Financial Education president Thomas Alessi told NTD on March 11.
Massachusetts pension and retirement attorney Julia Rueschemeyer advises considering the Income-Related Monthly Adjustment Amount (IRMAA) bracket before deciding to file for social security income early on in retirement.
The IRMAA tax is a monthly charge in addition to the Medicare Part B premium and is based on income from two years prior. As a result, social security income could land retirees in a higher IRMAA tax bracket.
“If your income for a married couple is up to $212,000 when you are 63, your IRMAA payment will be $185 per month when you are 65,” Rueschemeyer told NTD on March 11. “If your income goes $1 dollar more than $212,000 when you are 63, you will be paying $259 per month in IRMAA each month, which is $888 for the year based on making $1 more two years prior.”