Deciding when to start taking Social Security benefits is an important decision that can significantly impact your retirement income. This decision depends on several factors, including your expected longevity, the annual rate of return on your investments, part-time work, etc. Understanding a few of these elements can help you maximize your total wealth over your lifetime.
Longevity and Rate of Return
- Expected Longevity: Your life expectancy plays a significant role in determining when to claim Social Security benefits. If you expect to live longer, delaying your benefits can increase your overall income.
- Expected Rate of Return: The annual rate of return on your investment portfolio also influences this decision. A lower rate of return may suggest delaying benefits, whereas a higher rate of return might favor an earlier claim.
Key Insights from the Data
A recent analysis from JPMorgan provides a clear visual guide to help determine the optimal age to claim Social Security benefits based on these two factors. Here are the main takeaways:
- Claim at Age 62: If you expect a high annual rate of return on your investments (typically above 7%) and have a shorter life expectancy (below 77 years), claiming benefits early might be beneficial.
- Claim at Full Retirement Age (FRA): For those with a moderate expected rate of return (around 5-6%) and a life expectancy in the range of 77 to 90 years, claiming at Full Retirement Age (FRA) is often the optimal choice.
- Claim at Age 70: If your expected rate of return is lower (below 4%) and you anticipate a longer life (above 90 years), delaying benefits until age 70 maximizes your total lifetime benefits.
Example Scenario
Consider a woman with an expected consistent rate of return of 5.5% (net of fees) and an anticipated life expectancy of 88 years. Based on the analysis, she should consider claiming her Social Security benefits at age 70 to maximize her lifetime income.
Conclusion
While personal circumstances and financial needs will always play a role in this decision, using tools and data-driven insights can provide a more objective foundation for making this important choice. While you may not want to use this as your sole determining factor for your decision making, it is a good starting point. Be sure to review your entire situation before making a final decision. Our team is here to help you.
By understanding the interplay between your expected longevity and investment returns, you can make a more informed decision about when to claim your Social Security benefits, ensuring you get the most out of your retirement income.
Mark J. Modzeleski, CFS, CLTC, AIF
President, Legacy Wealth Advisors of NY
Source: JPMorgan's analysis on Social Security claiming strategies.