Make the right moves to maximize Social Security
Making the correct moves to maximize Social Security -- by not taking it too soon -- can pay off in the long run. Credit: iStock
I want to retire at 62, but wait until 66, my full retirement age, to claim Social Security. There's a substantial difference between the benefit amounts at 62 and 66. But I'll need some income. I'm thinking of drawing funds from my 401(k) plan to live on until I reach 66. Is there a serious downside?
This is a prudent strategy if you think you and/or your spouse will live past 78 -- and most healthy people in their 60s do. Of course, before making a decision you should also consider the size of your 401(k) account, its expected investment return, and how much you'll withdraw every year. Ask a tax accountant or a fee-only financial planner -- an adviser who doesn't sell investments -- to crunch your numbers in best- and worst-case scenarios.
Too many people underestimate Social Security's importance. It's a lifelong, inflation-adjusted annuity from the federal government -- a far more reliable credit than any commercial insurer -- and it continues paying your surviving spouse after your death. There's no comparable investment in your 401(k) plan, where annual return is neither guaranteed nor inflation-adjusted -- and indeed, may be negative.
As you say, there's a substantial difference between the Social Security benefit amounts you receive if you start at 62 instead of at 66. Unclaimed, your benefit grows about 7.25 percent a year (not including inflation adjustments) during those four years. The result: at 66, your initial Social Security benefit check is one-third bigger than at 62. And of course, your future inflation adjustments will be based on a higher amount. The older you grow, the more meaningful the difference will become.
The bottom line. Maximizing your Social Security benefit is the best way to protect yourself and your spouse from running out of money in old age.
Click here to read more at socialsecurity.gov/retirement/1943.html
TO ASK THE EXPERT Send questions to Ask the Expert. Act 2, Newsday Newsroom, 235 Pinelawn Rd., Melville, NY 11747-4250, or email act2@newsday.com. Include your address and phone number. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own advisers for your specific needs.
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