The big benefits decision

Helping clients determine when to begin collecting their hard-earned Social Security benefits is always tricky. Having worked a long career and finally making it to the promised land of retirement age, many people are justifiably eager to take what the government is ready and willing to give them.

But, as InvestmentNews contributing editor Mary Beth Franklin often likes to point out, the benefit of waiting is powerful, and the numbers don’t lie.

People whose full retirement age is 66 but begin collecting Social Security benefits at 62 collect just 75% of the benefits they would receive at 66. If they waited until 70 to collect, they would get the maximum benefit — 132% of the amount collected at 66.

In other words, if that person were entitled to a $1,000-per-month benefit at 66, he would collect just $750 per month by claiming Social Security at 62, but $1,320 per month if he delayed claiming until 70.

REGRETS

In fact, the latest batch of research suggests that many people who claim as early as they can come to regret that choice. A Nationwide Financial Retirement Institute survey released earlier this month found that 38% of retirees say they wish they had waited to collect Social Security benefits, which would have resulted in a larger monthly payment.

On the flip side, though, the reasons for claiming benefits as soon as possible are no less powerful.

CONSIDERATIONS

The physical health of the retiree is a major consideration, as is his or her overall financial status.

Simply put, the person may not live long enough to take advantage of higher benefit levels — or may just need the money. Alternatively, retirees who have built a significant nest egg can take the benefits and invest them on their own.

The Social Security Administration offers a wealth of resources for advisers and retirees trying to determine the best way forward with regard to claiming benefits. But even the government’s experts don’t come down squarely on one side or the other.

A document on the SSA’s website titled “When to Start Receiving Retirement Benefits” asks, “Would it be better for you to begin receiving benefits early with a smaller monthly amount or wait for a larger monthly payment later that you may not receive as long?

“The answer is highly personal and depends on a number of factors, such as your current cash needs, your health and family longevity, your plans to work in retirement, your other retirement income sources, your anticipated future financial needs and obligations, and, of course, the amount of your future Social Security benefit.”

The point is, when to start receiving retirement benefits is one of the most important questions people near or at retirement need to answer. Financial advisers should play a major role in helping clients reach the right one.