Retirees Need to Be Aware of Potential Risks InDependently Relying on Social Security During Retirement, Suggests Suze Orman
Retirement planning isn't a walk in the park, especially with rising costs. According to a 2024 report by Fidelity Investments, healthcare expenses alone could cost an average 65-year-old around $165,000 out-of-pocket. Add to that housing and everyday expenses, and you've got a hefty sum.
With Social Security being a crucial income source for many, it's important to have a solid strategy. Financial guru Suze Orman has some valuable insights to share, particularly if you plan on relying heavily on your Social Security benefits during retirement.
Utilize your age advantageously
In a late 2024 newsletter, Orman points out the challenges of retirement planning in the United States, especially for those with few income sources outside of Social Security. Traditional pensions are scarce, and the 401(k)/403(b) system has its share of pitfalls.
If you don't have a substantial nest egg to fund retirement, you might find yourself heavily relying on Social Security. While there's nothing inherently wrong with this, understanding how to maximize your benefits is crucial – particularly when it comes to choosing a claiming age.
Orman encourages those in good health in their 60s to postpone claiming their Social Security retirement benefit as long as possible. Despite the option to file as early as 62, delaying until age 70 can make retirement more affordable for those with limited other income sources.
Enhance your benefits significantly
The first figure to keep in mind is your full retirement age (FRA). This varies between 66 and 67, depending on your birth year. Filing at your FRA guarantees 100% of your benefit based on your work history.
If you file before your FRA, your payments will be reduced by up to 30% per month. However, delaying until age 70 will net you more than just your full benefit. You'll also receive an additional 24% to 32% per month – totaling hundreds of dollars more per month.
For example, let's assume you have an FRA of 67 years old and your monthly benefit would be $2,000 by filing at that age. If you were to claim at 62, you'd face a 30% reduction, leaving you with just $1,400 per month. But by waiting until 70 and filing after a 24% bonus, you'd collect your full $2,000 per month plus an additional $480 – amounting to $2,480 per month. In this scenario, the difference between filing at 62 and 70 is a substantial $1,080 per month.
If you're expecting to rely heavily on Social Security in retirement, that extra cash could be a game-changer.
Health and longevity – factors to consider
Orman specifies that those in good health in their early 60s should consider delaying benefits due to health and longevity expectations. If you anticipate living well into your 70s or even beyond, delaying Social Security benefits could be a wise move.
However, if you have health issues or believe you may not live a long retirement, starting benefits early might be a better option. Each check will be larger once you eventually file, but if you only have a few years to enjoy that money, delaying might not be worth the wait.
Determining when to file for Social Security is a complex decision that depends on numerous factors, including your financial goals and health expectations. Delaying Social Security until age 70 can provide substantial increases in monthly payments, but it requires careful planning and consideration of individual circumstances.
- In her 2024 newsletter, financial expert Suze Orman emphasizes the importance of retirement planning, especially for individuals relying heavily on Social Security, due to the scarcity of traditional pensions and the challenges of the 401(k)/403(b) system.
- Orman advises those in good health in their 60s to consider delaying their Social Security retirement benefit as long as possible to make retirement more affordable, as delaying until age 70 can result in an additional 24% to 32% in benefits per month.
- If an individual has an FRA of 67 and their monthly benefit would be $2,000 at that age, delaying until 70 and filing after a 24% bonus would result in a monthly income of $2,480, making a significant difference of $1,080 per month.
- Orman encourages retirees to consider their health and longevity expectations when deciding on their Social Security filing age. Delaying benefits could be beneficial for those anticipating living into their 70s or beyond, but starting early might be a better option for individuals with health issues or limited retirement expectancy.
