Blog picture-elderly couple on computerWhen and how to file for Social Security benefits is not simple. How old you and your spouse are when you file for Social Security can have a huge impact on your lifetime benefits. A national study shows that informed individuals make far better decisions, while uniformed people make costly mistakes.

An interactive online tool has been released by the U.S. Consumer Financial Protection Bureau (CFPB) that walks consumers through a series of questions to help them better understand the optimal time to file for Social Security benefits. The "Planning for Retirement" site is an attempt to address a serious problem facing older Americans who claim their benefits too early in life, which results in their receiving lower monthly benefits. The goal of "Planning for Retirement" is to show the user how to make a better decision.

In many instances, the claiming-age decision is based on limited information about the financial impact of that choice. The new CFPB tool lets people estimate how much money they can expect to receive at different ages and provides tips to help evaluate the trade-offs. The "Planning for Retirement" tool is at: http://www.consumerfinance.gov/retirement/.

Folks can claim their benefits several years before their "full retirement age" and take less money each month. Or they can wait and get bigger monthly checks. This is typically a one-time choice, so if you claim the reduced or increased benefit, that's what you get for the rest of your life, with annual cost-of-living adjustments. In addition, this decision affects the benefits your spouse will receive after your death.

The CFPB says that many individuals may not be taking advantage of their option to receive higher Social Security income and a more secure retirement. Specifically, the CFPB says:

  • Many Americans collect early even though they're living longer: Studies show that many retirees start collecting benefits at their earliest eligibility age. Almost half of claims were submitted at age 62 in 2013; however, on average, Americans reaching age 65 today will live to age 85, meaning that they may need income and savings to cover 20 years or more in retirement.
  • Millions face financial insecurity in retirement: Many consumers at and near retirement are unprepared financially.
  • Retirees rely on Social Security for income: With fewer traditional pension plans, about two thirds of the 40 million Americans age 65 and older who receive Social Security benefits depend on it for 50% or more of their retirement income. And it's critical for the increasing number of beneficiaries who are age 80-plus: it accounts for 70% or more of their income.
  • Consumers who lack info don't know about claiming-age choice: Research shows that people claiming Social Security before their full retirement age have less info about their benefits than those who claim at or after their full retirement age. A significant percentage of pre-retirees are confused about or lack basic knowledge of information about Social Security benefits.

This is a complex decision and, once made, cannot be undone. Before making this decision, speak with an experienced estate planning attorney, who will help you balance out factors that include longevity, inflation, current savings, interest rates, and planning and budgeting.

Reference: U.S. Consumer Financial Protection Bureau (November 12, 2015) "Consumer Financial Protection Bureau Releases "Planning for Retirement" Tool to Help Consumers Decide When to Claim Social Security"

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