Claiming social security early can cost members thousands of dollars

The retirement landscape is changing for credit union members.  In the past, pension income and Social Security benefits covered the majority of retirees’ expenses.  Today, with the decline of traditional pensions being offered by employers, an increasingly important retirement planning strategy is looking at how to get the most out of our Social Security benefits.  And right now, most Social Security beneficiaries are not.

Roughly 70 percent of retirees have chosen to collect their Social Security benefits prior to their full retirement age.  Full retirement age (FRA) is the age at which a person is entitled to 100 percent of their benefit.  For individuals born in the years 1943-1954, FRA is 66.  If they choose to collect their benefit prior to FRA, a reduction is applied to the benefit.  For example, there will be a 25 percent reduction if a person whose FRA is 66 chooses to collect their benefit at 62.  This means a person eligible for a $2,000 monthly benefit at 66 will receive only $1,500 at 62 if he/she collects at the earliest age possible.  What most members don’t realize is this is a permanent reduction.  The only increases they will receive thereafter are cost of living increases.

An unintended consequence of claiming early is how much may be given up in Social Security benefits.  Here’s an example of the potential impact of claiming early:

Bob is eligible for a $2,000 monthly benefit at age 66, but he chooses to collect the reduced amount of $1,500 at 62 instead.  If Bob were to live until the age of 86, the total cumulative benefits he would receive over the 24 years is $604,380 (this also includes an assumed annual cost of living adjustment of 2.8 percent).

If Bob waits until 66 to collect his benefit, he would begin receiving $2,000 per month.  Still assuming he lives until age 86, the total cumulative benefits received would be $631,928.  That’s a little more than $27,000 in additional benefits by choosing to wait even though he received the benefits for a shorter period of time (20 years instead of 24 years).

One of the first concerns with waiting to collect is what if Bob doesn’t live to age 86?  A main component of Social Security is the survivor’s insurance.  If Bob was married and was the primary worker, his surviving spouse will be able to step up to Bob’s benefit amount.  In other words, Bob’s higher benefit will continue to live on.  If the surviving spouse lives to age 90, the difference in waiting increases from approximately $27,000 to just under $56,000.

Social Security planning is certainly not a “cookie cutter” approach.  There are a number of ways credit union members can maximize their benefits, but not all strategies will be appropriate for all members.  The key, though, is education and making an informed decision.  Your credit union members have been paying into the system their entire working careers; why not look at ways to get the most back out for them? Take the time to inform your members about their retirement options, and I’m sure they will thank you later.

Cindi Hill

Cindi Hill

Cindi Hill is a retirement planning consultant for CUNA Brokerage Services, Inc. in Waverly, Iowa. She can be reached at or 319.483.2783. Web: Details