Do I have to take social security early to allow my investment to grow?

Question: I am 62 and I plan to retire next year. I will live on my investment while taking out social security. I’m trying to decide if I need to start Social Security early so I can let my portfolio grow or if I have to wait longer. I’m pretty healthy, but both my parents died in the late ’50s, so I mean that. thoughts?

– Investor

A. Choosing when to take social security payments is a very personal decision.

So much depends on your overall financial situation. And of course, the current downturn in the stock market is something to watch out for, especially if you’re close to retirement.

The idea of ‚Äč‚Äčasking for Social Security earlier to allow your investment portfolio to continue to grow may make sense in certain situations, said Brian Sheace, a certified financial planner at Modera Wealth Management in Westwood.

“One situation may be to protect yourself from a sequence of risks of return, in other words, to be forced to start withdrawing from your wallet during a depressed market,” Shees said. “Withdrawals from a portfolio that has already been deflated may limit the ability of the portfolio to recover when the market recovers.

Based on the reduction in social security benefits you would receive, as you said earlier, the investment portfolio could have a significant barrier to return to compensate for this difference, he said.

If you decide to claim social security before the age of 70 or full retirement age (FRA), you need to keep in mind exactly how many benefits you are giving up. Your basic Social Security Benefit or Basic Insurance Amount (PIA) represents how much you would like to receive in your FRA, which is currently between the ages of 66 and 67, depending on the year of birth, he said. For example, the FRA for someone born in 1956 is 66 and four months.

“In general, the earliest person who can claim social security benefits is 62 years old. However, if someone decides to claim their compensation before the FRA, their PIA is reduced by a certain percentage for each month before the FRA, “Sheace said. “A person’s PIA can be reduced by up to 30% if, for example, his FRA is 67 and he starts claiming pension benefits at the age of 62.

On the other hand, he said, the PIA will increase for each month in which someone postpones claiming their retirement benefit outside their FRA until the age of 70. This concept is called a deferred retirement loan and could lead to an increase in benefits of approximately 8% per year for each year of delayed application between the FRA and the age of 70, he said.

This is a pretty good rate of return, especially given the current stock market volatility.

Sheace called social security benefits attractive because they are one of the only sources of fixed income flows that are indexed to inflation.

“Social security benefits are eligible for an annual increase, known as the cost-of-living adjustment (COLA), which is based on inflation from the previous year,” he said. “To give some perspective, COLA for 2021 was 5.9%, while COLA for 2020 and 2019 was 1.3% and 1.6% respectively.

He called social security benefits and their COLA “a powerful tool to protect against the risks of outliving your assets and inflation”.

For that reason, it is often helpful to maximize your social security benefits, he said.

You also need to consider the number of years in which you actually receive benefits in your lifetime.

Of course, no one knows for sure that they will die.

“For this reason, the health and longevity of the family are important considerations in the decision on a social security claim,” he said. “If someone is diagnosed with a fatal disease and has a short life expectancy, is generally unhealthy or has no history of longevity in their family, these are factors that can make a person claim their social security benefits sooner or later.”

Consider working with a financial advisor who can help you consider your projected benefits and what to expect from your portfolio.

Send your questions by email [email protected].

Karin Price Mueller writes Confused column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. I find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com‘s weekly e-newsletter.

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