Millions of seniors today collect a monthly benefit from Social Security. And without those benefits, a lot of older Americans would no doubt be plunged into poverty in the absence of having savings.
It's for this reason that it's so important to file for Social Security strategically. The filing age you land on will help determine how much monthly income you get from Social Security on a lifetime basis.
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But what if you're someone who's wealthy going into retirement? Maybe you enjoyed a successful career and were able to sock away millions so you're sitting on a very robust 401(k) or IRA.
In that case, you probably don't have to sweat your Social Security filing decision. You should consider yourself lucky, since it's not an easy one to make.
When the stakes aren't as high
If you're an average earner with a modest nest egg, then it's important to claim Social Security at the right time. You're allowed to sign up for benefits as early as age 62. But if you file before full retirement age (FRA), which is 67 for those born in 1960 or later, then you'll face a permanent reduction in your monthly benefit.
You can also delay your Social Security filing past FRA. For each year you do, up until age 70, your monthly benefit will get a permanent boost.
If you expect to pay a large chunk of your bills with Social Security income, then it's really important to land on the optimal filing age. But saying you'll wait as long as possible to file for Social Security isn't necessarily the right answer.
Many people aren't able to work until age 70. And if your health is poor, filing at an earlier age could result in more lifetime income from the program. So all told, there are many different factors to consider.
If you're wealthy, though, then claiming Social Security is a decision you probably don't have to sweat. The maximum monthly Social Security benefit this year is $4,555. That's over $54,000 a year.
But if you have $20 million in assets going into retirement, then it probably doesn't matter whether you end up getting the maximum benefit Social Security will pay or a smaller one. That income may end up being pocket change.
Consider your options carefully if you're not wealthy
Most people aren't entering retirement with millions upon millions of dollars. Northwestern Mutual, in fact, puts the average retirement savings balance among 60-somethings at $112,500.
As such, most seniors do need to carefully review their filing choices before officially claiming Social Security. To that end, you'll need to think about not just your income and health, but also your expenses and retirement goals. And if you're married, you'll need to think about how your filing decision will impact your spouse.
It's a good thing to be wealthy in the context of claiming Social Security because it takes a lot of pressure off your retirement. But your filing decision doesn't have to be stressful if you give yourself plenty of time to make it.
If you need to enlist the help of a financial advisor to make that decision, so be it. It could, in fact, be a good idea to get that outside perspective in case there's an aspect of your filing choice you may be overlooking.
