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Planning for retirement has always presented challenges, particularly due to the ever-increasing costs associated with living, healthcare being a primary concern. A report published by Fidelity Investments in 2024 indicates that a 65-year-old may incur approximately $165,000 in out-of-pocket healthcare expenses, not to mention the rising costs of housing and daily necessities.
Given these financial pressures, many older adults find themselves needing to optimize their incomes. While Social Security benefits can significantly contribute to retirement funding, having an effective strategy is essential. Renowned financial expert Suze Orman offers key insights on this vital topic.
Leverage Your Age Strategically
In her late 2024 newsletter, Orman addresses some of the common challenges faced by retirees, particularly those who lack diverse income sources apart from Social Security. She highlights that the diminishing prevalence of traditional pensions, which typically provide stable retirement income, adds to the difficulty of effective financial planning.
Orman notes, “So few workers are covered by traditional pensions that provide guaranteed income in retirement,” underscoring the importance of understanding how to navigate the often complex world of personal savings and retirement plans such as 401(k)s and 403(b)s, which can be fraught with pitfalls.
For individuals who find themselves without significant savings, Social Security becomes an essential source of income. However, many people struggle with optimizing their benefits, particularly when it comes to determining the best age to start claiming. Orman strongly advises those in good health in their 60s to delay claiming their Social Security benefits as long as possible. While benefits can be initiated as early as age 62, postponing until age 70 can yield a more financially robust retirement.
Increase Your Monthly Payments Significantly
To get the most out of Social Security, it’s critical to know your full retirement age (FRA), which varies between ages 66 and 67 depending on your birth year. Filing for benefits at this age guarantees that you will receive the full amount based on your earnings history.
When claiming benefits before reaching your FRA, monthly payments can see reductions up to 30%. Interestingly, waiting until age 70 can boost your monthly payment by an additional 24% to 32% on top of your full benefit.
For instance, if you have a FRA of 67 and are entitled to $2,000 monthly benefits at that age, claiming at 62 would result in a reduced payment of approximately $1,400. However, if you opt to wait until 70 to claim your benefits, your monthly total could rise to $2,480—a remarkable difference of $1,080 each month. This additional income can be pivotal for those relying significantly on Social Security to meet their retirement needs.
Health Considerations in Your Decision
Orman explicitly mentions the importance of health status when determining the age to claim Social Security benefits. If you’re experiencing health challenges or have concerns about your longevity, it may be more prudent to start receiving benefits sooner rather than later. While waiting for larger checks can be beneficial, the trade-off may not be worthwhile if you have limited years to enjoy those benefits.
The uncertainty surrounding life expectancy makes this aspect of retirement planning uncomfortable, yet it’s crucial to consider. Gaining a realistic perspective on how long you anticipate needing your retirement savings can help inform your decision about when to claim Social Security.
Delaying your benefits can lead to substantial financial gains, but there is no universally ideal claiming age; it varies based on individual circumstances such as health and retirement goals. By thoughtfully evaluating these factors, you can make informed choices that align with your financial strategy for retirement.
Source
www.fool.com