Bill: A client of mine is trying to decide when to retire. She was born in February 1955. Her estimated benefit statement from Social Security says her monthly benefit will be $2,541 if she claims at her full retirement age of 66 and 2 months. She would like to retire now at age 65 but plans to wait until full retirement age to file for benefits. Her question: Is the estimated benefit predicated on her continuing to work at her current pay scale until she reaches age 66 and 2 months? Will she lose a chunk of benefits if she retires now but waits until next year to claim benefits?
MBF: Retiring from work and claiming Social Security benefits are two separate events. Social Security calculates benefits based on your highest 35 years of average earnings and assumes you continue working and earning at your current level through full retirement age. But the monthly benefit you actually receive is based on the age when you claim benefits: It’s less than the estimated amount if you claim before full retirement age, and more if you claim later, up to age 70.
With less than a year to go before your client reaches full retirement age, retiring now should not have a major impact on her benefits if she waits until she reaches full retirement age to claim them. For other clients who may have a bigger gap between the date they stop working and the date they plan to claim benefits, the impact could be more substantial.
The Social Security Administration has several calculators (https//www.ssa.gov/OACT/anypia/index.html) available on its website that let you play around with “what if” scenarios of retiring in one year and claiming benefits at a later date.
The Quick Calculator provides a rough estimate of your retirement benefits based on your current earnings. You can enter zero earnings for future years between the time you stop working and the year you plan to claim benefits. The results of both calculators are merely estimates. Social Security can’t tell you your actual monthly amount until you apply for benefits.
Mary Beth Franklin, a certified financial planner, is a contributing editor for InvestmentNews.
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