Timing your Social Security retirement benefits can depend on several factors. Here’s a quick primer on when to take Social Security.
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— About Patrick King CFP® —
Patrick King is a fee-only financial advisor in Atlanta and the Founder of Prana Wealth. Over his career, Patrick has helped CEOs, all-star athletes, Grammy-winning artists, and many others build their wealth, retire sooner, and create a legacy. Patrick enjoys yoga, mountain biking, golf, travel photography, and Clemson football.
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When To Take Social Security Benefits: A Matter of Timing
Social Security benefits are a crucial aspect of retirement planning for millions of Americans. They provide a steady source of income during your golden years and help ensure financial stability. However, deciding when to start taking your Social Security benefits can be a daunting task, as the timing can significantly impact the amount you receive throughout your retirement.
The full retirement age (FRA) for Social Security benefits is typically 66 or 67, depending on the year of your birth. While you can start receiving benefits as early as age 62, your monthly payments will be reduced compared to waiting until your full retirement age. On the other hand, delaying your benefits beyond your FRA can result in increased monthly payments.
Here are a few factors to consider before making the decision:
1. Financial Needs and Health: Assess your financial situation and health condition. If you’re in good health and have other sources of income to meet your needs, waiting until your full retirement age or even beyond could be beneficial. By doing so, your monthly payments will be higher, providing a more comfortable retirement income. However, if you are in poor health or have an urgent financial need, claiming benefits earlier may be the right choice.
2. Longevity: Consider your family’s history of longevity. If you have a family history of living a long life, waiting to claim Social Security benefits can be advantageous, as it ensures a higher monthly payment for a potentially longer retirement period. Conversely, if your family history indicates shorter lifespans, claiming earlier may make more sense.
3. Spousal Benefits: If you are married, take into account your spouse’s Social Security benefits as well. Depending on your individual circumstances, strategizing to maximize the combined benefits for both spouses may involve taking benefits at different ages. For example, the higher-earning spouse may delay benefits to increase their future monthly payments, while the lower-earning spouse claims benefits earlier.
4. Other Sources of Income: Evaluate any additional sources of income you may have, such as retirement savings or pension plans. Having alternative income streams can provide flexibility when deciding when to claim Social Security benefits. If you have sufficient savings or investments, it might be advantageous to delay benefits, allowing your Social Security payments to compound and grow.
5. Employment Situation: Consider whether you plan to continue working during retirement. If you claim Social Security benefits before reaching your full retirement age and earn substantial income from employment, your benefits may be reduced based on your earnings. Once you reach your full retirement age, there are no earnings limits, and your benefits will not be reduced regardless of your income.
Ultimately, the decision on when to take Social Security benefits is a deeply personal one that should take into account your individual circumstances and goals. Consulting with a financial advisor can provide invaluable guidance tailored to your specific needs and help ensure you make an informed choice.
Remember, each individual’s situation is different, and what works for someone else may not be suitable for you. Weigh the potential benefits and drawbacks carefully, keeping in mind that maximizing your Social Security benefits is integral to achieving a financially secure retirement.
I’m sorry. Spell check please. The misspellings were a distraction. However thank you so much for the information!
Everybody's story is different. Here's mine, I retired 7 years ago at age 62 and went on Social Security at that time and here's why. I first calculated my break even points. By that I mean when would my 62 year old, my 66 year old and my 70 year old money come even. For me it was 79 years and 8 months. So the question I had to ask myself was: Would I rather have 4 more years of retirement (based on age 66. or 8 more years at age 70) or more money when I was almost 80. The answer was simple, I took the time because time is the one thing money can't buy. I turned 69 yesterday. There is no doubt I made the right decision. I am in a place where I know I won't outlive my money. The other lesson I've learned thru this process is that it's not about the money. It's never about the money. It's about something that is more valuable than money, it's the time. Time is the most precious thing in you life.
ASAP!
So, retiring at 62 (1416.00/month) and dying at 82 (20 years) brings $339840.00.
And retiring at 70 (2506.00/month) and dying at 82 (12 years) brings $360864.00.
Is that right? Waiting until 70 only adds $21024.00?
As you said, SocSec is "an unnecessarily complicated govt program." As such you cannot cover all the details in a 7-minute vid. Another detail complicating things is how much of your SocSec gets taxed. If you delay and get higher payments, you may find that a greater portion of your SocSec is taxed, and possibly at a higher rate. This situation would make the breakeven point a little bit younger, maybe not that much, but it is a factor.
Another consideration, one that happened to me — You might want to delay taking SocSec to keep your income lower while dealing with other financial matters. In my case, I had some cash savings along with a little income from a few investments, enough to live on for 2-3 years. I had Two financial matters. (1) I have an IRA and near my FRA finally realized it would be wise to convert that to a Roth. The money from the IRA counts as income and if I also took SocSec my income would be subject to the higher tax rate (22% I think). But without SocSec my tax rate was the historically low 2nd tier tax rate of 12% (thanks to Trump tax change). If possible, I try not to let the govt take more money from me than they already have. (2) Another reason to limit income is that my spouse had Obamacare and as soon as you hit a threshold of around $65K income, you suddenly lose any subsidy and end up paying many $1000s more for health care. So not taking SocSec kept us below that threshold. Now I'm 2 years past FRA and will soon apply to draw SocSec, at 116% of the FRA amount. I think for me it was worth waiting.
Took mine at 62 as it was the best option. I needed the money,plus I have a child who is a minor. The plus was the additional benefit for my child.
Take Social Security as soon as you can.. unless of course life has been one big party and you didn't prepare for retirement, then you got to work until you die of old age
My Aunt retired early and lived way below her means. She was able to wait until 70 YO to max out on SS benefits at $3500 per month. She owns a house debt free and has a reasonable savings. I think the best practice was using her husband's SS benefits and possibly his pension and not using her social security benefits until age 70.
I may have to pick early due to lack of work. Despite the low unemployment I can't seem to get hired due to agism.
Delayed? LOL
The break even age analysis seems to me to not be very useful given the vast majority of people have to make a plan based on living well past the break even age. Unless you have a serious illness today, you need to make a plan that will be safe if you live into your 90s.
Sure you might die early, but you cannot know that, so today you have to take an income based on living a long life. What is the strategy that gets you the highest annual income based on planning for a long life?
(A) If you take your SS at 62, plus a safe income from your savings, you get some income plan.
(B) If you take your SS at some future age, you get more in social security later, but have to spend more in savings early, so have less income from savings later. There is a plus and a minus to work out. But you can work out a safe annual income.
In most cases you get a higher yearly income every year in case B. If in the end you die young and you got less from social security than you could have that is not a problem, you still had more money to spend every year while living.
Easy enough to estimate the age 67 or age 70 safe income plan by mentally splitting savings into two buckets. One bucket to just cover the missing social security until age 67 or 70, the second bucket you apply the so called 4% rule to estimate income from savings. Your annual income is then the sum of social security and income from savings.
Doing a quick analysis of taking SS @ FRA (about $3k) vs waiting until 70 (+$1k), I get a break even at 81. However the opportunity cost (@ 6% / yr) of using my retirement funds to fill that gap pushes my break even until at least 83.5,.which is right around the average male life expectancy. My point is that while everyone's situation is different, the cost to delay SS is not that straight forward and could impact future gains in your portfolio by having to replace that SS income in the interim.
I appreciate the need to keep the analysis simple for this short video; however, 2 important factors were omitted that weigh heavily in favor of taking Social Security at the earliest possible age:
First, there is the time value of money. If you can afford to delay taking benefits until your FRA or later, then you can also afford to take benefits early and invest all of them. Assuming even modest a modest return on investment, I am showing that this would push my break-even age from early 80’s to early 90’s.
Second, there is the inevitable future insolvency of Social Security. Benefits will have to be either reduced or taxed at increasingly higher rates, likely within the lifetimes of those currently considering retirement. Clearly, it is better to start taking benefits before this happens.
UPDATE: The average increase for SSI recipients is reported to be $92.00/month, the reported Medicare Part B premium will be $158.50/month for 2022. So $158.50 minus $92.00 equals negative $66.50, now how does everyone feel about that 5.9% increase in SSI. If you can possibly take your SSI at 62, take it, because it really doesn't get any better with the passage of time. Hopefully everyone has several other income streams they can rely on to support their retirement.
You take Social Security at 62, there you go SOLVED. Remember Social Security is never going to make a person rich and the longer you wait the older you get and the more decrepit you get. Take it as soon as you can and spend the hell out of it doing the things that bring you pleasure. The talking heads are effusing about the 5.9% increase in Social Security, but remember Medicare Part B premiums get taken out first before you get your check, how much is Part B going up, because you know it will.
Regarding breakeven age, that is the age that a person STARTS to receive a benefit for waiting, how much longer does one have to live healthily to actually receive that benefit. Also Life Expectancy does NOT apply to individuals, it is a statistic that applies to the population of people over a certain age, as such cannot be used to gauge how long the individual can expect to live.
And NEWS FLASH people are not living longer, more people are living to old age is what drives up Life Expectancy.
Great explanation, but maybe spell check your slides (dealying?).
The federal government is breaking the law by double taxation what's a mother to do? stop paying taxes are live overseas? Take the money and run and hide from your abusive Uncle Sam….
Hey Patrick, I like this video, along with a few others I have watched, I have subscribed and am looking forward to hearing more information about Ss. thanks again for your help
You did not mention an important factor in this decision that applies to married couples, where one person earned significantly more than their spouse. If the high income earner passes first, their spouse is able to take over that higher earner's SS benefit, versus continuing with their own (lower) SS benefit based on their own earnings. So delaying SS benefits of the high income earner can be a good strategy for a married couple, especially if the higher income earner has greater health issues or is expected to not live as long as their spouse. Do you agree?
Thank you for this…in plain easy english!
I'm retiring at my FRA at 66 1/2, a year and a half come this March, just want to do the things I want to do. All set and ready to go financially.
A co worker of mine lost her husband at age 54. My own father passed at age 74. One never knows how long life will be.
I initially was planning to live off of savings and wait until age 70. But the extra SS income means I can afford better travel experiences now. My plan now is to retire early age 64. I missed my age 62 early in. My FRA age 66+8mos. I only start to lose money at age 74. And by then who knows? Great video.
I think retiring at your FRA is the best plan. Waiting till 70 is a bridge to far.
Only problem with these BE analysis, is that the BE points are not TRUE BE points because those future dollars are deflated. Which means a TRUE BE point is actually longer. Also, by waiting till 70, your getting a higher check at an age when statistically you spend less in virtually every category except healthcare. And you're getting a bump in cash-flow at an age when you are much less likely to be able to enjoy it, even if you're still healthy (for a person that age).
If you die before your BE point, you lose. Government keeps everything you didn't collect and your heirs have less because you were likely eating up your own assets to gamble against the house. Also, even if you surpass your BE point, you'll never collect enough extra to even equal what you wagered up front (all the payments you didn't get). Ignoring the obvious health and life risk, would you make a bet in Vegas where you have no chance of even getting even money?
If you have to wait to collect because you haven't saved for retirement and can't live on what you would get at an earlier point, you'll have to do what you'll have to do. But if you don't need to rely on SS as your sole means, it is foolish to eat away at your assets to retire and an older age when you'll be less physically able to enjoy it, just to ensure the government will have more. Do yourself and your heirs a favor, retire and collect as early as you can.