Skip to comments.When Should You Take Social Security?
Posted on 12/31/2017 7:23:49 AM PST by SeekAndFind
Taking Social Security benefits before you reach full retirement age may not be in your best interest.
Well cover Social Security benefit eligibility and factors to consider when deciding when to take Social Security.
The strategies for maximizing benefits can get complextalk to your financial planner or tax professional if needed.
When you start receiving full Social Security retirement benefits is a key question for your retirement plans. The first thing to understand is that the concept of full retirement age is a moving target that depends on your birth year (see table below).
You can elect to take benefits as early as age 62 (or earlier if you are a survivor of another Social Security claimant or on disability), or wait until as late as age 70. Theres no correct claiming age for everybody. But, if you can afford to wait, starting Social Security later than age 62 can pay off over a long retirement.
Here well take a look at some of the rules and guidelines.
Full retirement age (also known as normal retirement age) is when youre eligible to receive full Social Security benefits. The full retirement age used to be 65 for everyone. That has changed.
Under current law, if you were born in 1951 or later, your full retirement age is now some point after age 65all the way up to age 67 for those born after 1959. If you were born before 1951, youve already reached age 66 and full retirement age.
Retirement ages for full Social Security benefits
|If you were born in ...||Your full retirement age is ...|
|1950 or earlier||Youve already hit full retirement age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 or later||67|
If you choose to start receiving your Social Security check up to 36 months before your full retirement age, be aware that your benefit is permanently reduced by five-ninths of 1% for each month. If you start more than 36 months before your full retirement age, the benefit is further reduced by five-twelfths of 1% per month, for the rest of retirement.
For example, if your full retirement age is 66 and you elect to start benefits at age 62, the reduced benefit calculation is based on 48 months. This means that the reduction for the first 36 months is 20% (five-ninths of 1% times 36) and 5% (five-twelfths of 1% times 12) for the remaining 12 months. Overall, your benefits would be permanently reduced by 25%.
If you retire sometime between your full retirement age and age 70, you typically get a credit. For example, say you were born in 1951 and your full retirement age is 66. If you started your benefits at age 68, you would receive a credit of 8% per year multiplied by two (the number of years you waited). This makes your benefit 16% higher than the amount you would have received at age 66.
That higher baseline lasts for the rest of your retirement, and serves as the basis for future increases linked to inflation. While its important to consider your personal circumstancesits not always possible to wait, particularly if you are in poor health or cant afford to delaythe benefits of waiting can be significant.
To review your situation, your annual Social Security statement will list your projected benefits at age 62, full retirement age, and age 70. If you need a copy of your annual statement, you can request one from the Social Security Administration (SSA).
Consider the following factors as you decide when to take Social Security.
1. Your cash needs. If youre contemplating early retirement and you have sufficient resources (adequate investments, a traditional pension, other sources of income), you can be flexible about when to take Social Security benefits. However, if youll need your Social Security benefits to make ends meet, you may have fewer options. If possible, you may want to consider postponing retirement or work part-time until you reach your full retirement ageor even longer so that you can maximize your benefits.
2. Your life expectancy and break-even age. Taking Social Security early reduces your benefits, but youll also receive monthly checks for a longer time. On the other hand, taking Social Security later results in fewer checks during your lifetime, but the credit for waiting means each check will be larger.
At what age will you break even and begin to come out ahead if you delay Social Security? The break-even age depends on the amount of your benefits and the assumptions you use to account for taxes and the opportunity cost of waiting (investment returns you could have made, inflation, etc.).
The SSA has several handy calculators you can use to estimate your own benefits. For example, if youre a top wage earner turning 62 this year, then your break-even ages are as follows:
Monthly Social Security benefits
62 vs. 66
Between 77 and 78
62 vs. 70
Between 80 and 81
66 vs. 70
Between 82 and 83
In this example, if you wait until age 66 to take Social Security instead of taking it at age 62, youll come out ahead as long as you live to at least age 77-78. The break-even age goes up the longer you wait. See the graph below for an illustration of sample break-even points.
Source: Estimates based on data from ssa.gov, shown in todays dollars, using SSAs Quick Calculator as of 10/31/2017 for a person born 5/1/1954, with earned income equal to or greater than the maximum Social Security wage base. The SAA calculator and table above does not include a cost of living adjustment. The chart above includes 2% annual cost of living adjustment to include that in the break-even calculation. Time value of money is not considered in the example.
Theoretically, it shouldnt matter when you start to receive your checks, provided you have an average life expectancy. However, if you think youll beat the average life expectancy, then waiting for a larger monthly check might be a good deal. On the other hand, if youre in poor health or have reason to believe you wont beat the average life expectancy, you might decide to take what you can while you can.
While it may be tempting to look only at your break-even point and think about Social Security as a math equation or an investment decision, another approach may be to think about Social Security as a form of insurance.
Unlike conventional investments, Social Security isnt affected by stock market changes, provides protection against inflation and is designed to pay out no matter how long you live. Social Security also provides guaranteed, inflation-adjusted incomewhich can be expensive and difficult to replicate with investments.
Remember, though, that the average is just thatan average. If you have a shorter life expectancy than average, then early withdrawals might be a better option for you. If you dont, starting Social Security later can be particularly beneficial if you live longer than average.
3. Your spouse. If you have a spouse covered by Social Security, you can explore additional strategies to maximize the benefits you receive between you. Start by taking your spouses age, health, and benefits into account, particularly if youre the higher-earning spouse. The amount of survivor benefits for a lower-earning spouse could depend on the deceased, higher-earning spouses benefitthe bigger the higher-earning spouses benefit, the bigger the benefit for the surviving spouse.
For spouses with equivalent work histories and life expectancy, it may make sense for both of them to delay their benefits up to age 70, if possible. In other cases, especially when there are material differences in work history, it might make sense for the lower-earning spouse to file earlier while the higher earner waits until age 70. This is called a 62/70 split strategy.
62/70 split strategy
With this strategy, the lower earner files early at age 62 (or at full retirement age) based on his or her own benefit. The higher earner later files at age 70.
When a lower-earning spouse files for benefits at age 62, the benefits are reduced based on the number of months before full retirement age.
Even though an early-filing penalty would still apply to any benefits the lower-earning spouse received before full retirement age (whether theyre calculated based on that spouses own earnings record or the higher-earning spouses record), in the event of the spouses death, the surviving spouse would be entitled to their own, or their spouses benefit, whichever is higher. In the meantime, the lower earner can still collect something while the higher earner waits until age 70 for their maximum benefit.
In the past, couples were allowed to use a strategy called file and suspend, under which the higher-earning spouse would file and suspend their benefit at full retirement age, and then wait until age 70 to start collecting, so their partner could claim a spousal benefit. However, that strategy is no longer permitted.
In addition, unless you turned 62 before Jan. 1, 2016, you can no longer file a restricted application to claim a spousal benefit. If you are grandfathered into this option, however, you can still consider it. Heres how it works: At full retirement age the lower earner could file for his or her own benefit, while the higher earner would file a restricted application for spousal benefits. The higher earner would then wait until age 70 to switch to his or her own benefit, at which time the lower earner would switch to a spousal benefit, if higher than their own.
The process of trying to optimize your Social Security benefits over a joint lifespan can be complex. Talk with an advisor (such as a Schwab Financial Consultant) to provide an assessment and help with options.
4. Whether youre still working. Earning a wage (or even self-employment income) can reduce your benefit temporarily if you take Social Security early. If youre still working and you havent reached your full retirement age, $1 in benefits will be deducted for every $2 you earn above the annual limit ($16,920 in 2017).
The reduction falls to $1 in benefits deducted for every $3 you earn above a higher limit ($44,880 in 2017), deducted only for income earned before the month you reach your full retirement age in the year you reach your full retirement age. Starting the month you hit your full retirement age, your benefits are no longer reduced no matter how much you earn.
Again, any reduction in benefits due to the earnings test is only temporary. You receive the money back in the form of a higher benefit at full retirement age, so dont use the reduction as the sole reason to cut back on working or worrying about earning too much.
Keep in mind that Social Security benefits may be taxable, depending on your modified adjusted gross income (MAGI), also known as provisional income. Your provisional income is equal to your adjusted gross income (AGI), plus non-taxable interest payments (e.g. interest payments on tax-exempt municipal bonds), plus half of your Social Security benefit. As your MAGI increases above a certain threshold (from earning a paycheck, for instance), more of your benefit is subject to income tax, up to a maximum of 85%. For help, talk with a CPA or tax professional.
In any case, if youre still working, you may want to postpone Social Security either until you reach your full retirement age or until your earned income is less than the annual limit. In no situation should you postpone benefits past age 70.
For more information, see the SSA publication How Work Affects Your Benefits, and IRS Publication 915: Social Security and Equivalent Railroad Retirement Benefits.
If you previously elected to receive early Social Security benefits at a reduced rate, but then change your mind, you have the option of paying back to the government what youve already received. After, you could restart benefits later to take advantage of a higher payout. But you can only do this for one years worth of benefits.
For example, lets say you elected to receive early benefits at age 62, but then decided to go back to work at age 63. You could stop receiving Social Security, pay back the years worth of benefits you received, go back to work, and then wait until a later age to restart your benefit checks at a higher level.
For important details about repaying benefits please read the SSA publication If You Change Your Mind.
Are you skeptical about the future of Social Security or wary of potential changes such as means testingwhich could reduce or eliminate benefits for the wealthyor an increase in the full retirement age? If so, you may be tempted to start benefits early, under the assumption that its better to have a bird in the hand than nothing.
The 2017 annual report from the Social Security Trustees projects that the Social Security Trust Fund has enough resources to cover all promised retirement benefits until 2035 without changing the current system. Over the longer term, changes such as later benefit dates or means testing (a reduction in benefits based on your other income sources) may be considered.
In any situation, if youre particularly concerned about the future prospects for Social Security, thats a good reason to save more, earlier, for your retirement.
|Consider taking benefits earlier if||Consider waiting to take benefits if|
|You are no longer working and cant make ends meet without your benefits.||You are still working and make enough to impact the taxability of your benefits. (At least wait until your normal retirement age so benefits arent further reduced due to earnings.)|
|You are in poor health and dont expect to make it to average life expectancy.||You are in good health and expect to exceed average life expectancy.|
|You are the lower-earning spouse and your higher-earning spouse can wait to file for a higher benefit.||You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.|
If you have a choice and are in good health, think seriously about waiting as long as you can to take your benefits (but no later than age 70). For retirees in good health, a long retirement, coupled with uncertainty about markets and inflation, are the biggest risks. Delaying Social Security, if you can, is effectively an insurance policy against those challenges.
Your situation may differ, however, and there are many factors to consider. Get help from your financial planner if you need it.
1Source: OASDI (Old Age, Survivors and Disability Insurance) Monthly Statistics.
A friend of mine who works for Boeing saw this on the counter at a tool room. There was a chart about Boeing retirees and if you waited until sixty-five to retire the average payout was only for eighteen months meaning the retiree died a year and a half after retiring. If they retired at fifty-five the payout went over twenty years. Think about it.
Just because I’ve been defrauded of my means to provide illegitimate benefits to others doesn’t give me the right to see others defrauded in turn for my benefit.
People’s circumstances aren’t enumerations of power.
> if you wait until age 66 to take Social Security instead of taking it at age 62, youll come out ahead as long as you live to at least age 77-78 <
For me, that’s a key point. A person who’s 62 is still young enough to enjoy travel, etc. A person at 78, not so much.
Theyve already screwed those born 1960 and later. They want to raise it to 70. Just how much more can they rob us? I guess a lot more. Raise the cap to 250,000 and put it back to 65 years old. This is not welfare. Its money we put into the system. In the 80s they decided to borrow from the account which is why its screwed up.
Take the money! Anyone who Waits for 8 years without an ironclad guarantee from God that they’re going to live to make up what they will have lost if they died the day before the 70th birthday is nuts.
Even if you don’t need the money take it and invested the stock market historically goes up two days out of every three and the average return is 8%. No one with a brain ever refuses money unless it is a critical tax situation which in most cases this would not be since most States and the government exempt social security income at least partially.
Its just a bet against the mortality table. unless, of course, you need the money. Then you have to take it period.
but, if its just about the numbers on the paper (your net worth statement) you have an edge. At agee 66 are you healthier than the average 66 year old? If so, hold off. If not, take the money now.
I thought 85%of social security income is taxable income?
Everyone’s situation is different. Not trying to advertise for a CPA or retirement planner, but the help of someone who knows all the permutations of one’s situation is key here.
Take it as early as you can. You don’t know when you will die.
The first retirement dates were 62 years old and the government expected you to die at 57 years. Your wife could then draw and she was expected to die at 65.
Then came Penicillin.
It was spent, and is being spent: there is nothing for them to return.
That’s why I say I’ve been defrauded.
I have no legal recourse.
But that doesn’t make it right for me or anyone to benefit from the fraud.
Screw everyone. Including me.
It’s the only way to restore governance by constitutional means and save the country.
Illegalos & Illeaglas get much more!
Thank you. I’m 61 and hoping to hold onto my sanity long enough to retire at 66. That’s slightly less than “full retirement age” but well within the 36-month window.
Take the money as early as you can get it.
A friend and co-worker who was 73 and retired January 1 of this year(2017) had multiple pensions from prior jobs and waited until 70 to take SS. He was diagnosed in end of January with small cell lung cancer and died in back in October.
He was not hurting for the money but he could have used it to set up a college fund or whatever for his grand kids. He could have taken it and retired earlier and lived his life.
My great grandfathers both died in their early 60s, my father at 69. I'd be foolish to wait.
The Bottom Line...
One ironic problem for me. I understand you can start collecting your new birthday rate in the January you reach that age. In my case, since my birthday is in January, I have to wait until I actually turn 70.
Could be worse. My draft lottery number was 59.
Just a re-write of the BS the Social Security Administration puts out.
Anyone who has even a little education in finance knows about the “time value of money”. A simple concept that a dollar today is worth more than a dollar a year from today. For secure transactions it usually shows up as an interest rate.
The break-even tables are calculated ignoring the time value of money, almost as if the government skipped class that day. But, if I am even one day late paying them a tax, that department knows all about the time value of money and I am charged interest for making a late payment.
If one accounts for any realistic interest rate, the break even dates get later and later...
Thanks. Good info.
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