Planning for retirement in the United States can be complicated. One of the most important decisions is when to start collecting Social Security.
Many people automatically think of age 62, the minimum age, or wait until 66 or 67, the full retirement age. However, there is a little-known strategy that can significantly increase your benefits: the so-called "eight-year rule."
What is the "eight-year rule"?
It's not an official government term; it's a concept used by financial advisors. It refers to the period between ages 62 and 70, the most decisive years for planning your retirement. During this time, you can choose to collect earlier or wait, and the difference can be enormous.
If you start collecting at 62, you'll receive less money each month. But if you wait until 70, your payments can increase significantly. This is due to delayed retirement credits, which raise your benefits by about 8% for each year you wait.
How does this affect your money?
Let's look at a simple example. Suppose your monthly benefit at full retirement age would be $2,000:
- If you start collecting at 62, your payment could be $1,400 per month.
- If you wait until 70, it could rise to $2,480 per month.
That difference of over $1,000 per month may seem small, but over 20 years it can add up to more than $250,000 extra. Yes, you read that right: a quarter of a million dollars for having waited.
Who benefits the most?
This strategy isn't for everyone. It's ideal if:
- You have good health.
- You have a family history of longevity.
- You have savings or income that allow you to wait.
- You're married and want to protect your partner with higher benefits in case of death.
In these cases, waiting can be the smartest financial decision. The higher payment will stay with you for life, ensuring greater financial stability.
When does it not make sense to wait?
You can't always or shouldn't always wait until 70. Some reasons to collect earlier include:
- Immediate need for money due to job loss.
- Health problems that reduce life expectancy.
- Lack of sufficient savings to cover expenses while you wait.
- Desire to retire young and enjoy life while you have energy.
If you decide to collect earlier, your payments are permanently reduced. It's a decision that can't be reversed, so it's crucial to plan ahead and know your options.