Deciding whether to start taking Social Security now, or waiting until later is a complicated decision, or at least it frequently gets made out that way.
If you want to read all of the nitty-gritty details about Social Security benefits, there is a lot of great information available directly from the Social Security Administration online at www.ssa.gov. Despite what you think, the information there is just as easy to read and understand as what you will find anywhere else. They even have Benefit Estimator if you want to get a rough idea of what your benefit might look like. If you sign up for a mySSA account, you can get pretty exact details, if you are close to retirement age. (If you have several years to go until retirement, any data will be an estimate because the amount of your future earnings can affect what your actual benefit is.)
Social Security Benefit Full Retirement Age or Early
These days, Congress has tinkered around with how and when Social Security benefits are paid in order to prop up the system. The first thing you need to know is when your “full” retirement age is. The scale is based upon when you were born. If you were born after 1960, then your full retirement age is 67. This is the age when you would start getting your standard, or normal, Social Security benefit amount.
However, you CAN start collecting at age 62, although your benefit would be reduced. You can also wait, or delay, taking your benefit, and then your monthly payments would increase. There is no credit for delaying beyond age 70, so you may as well start collecting then.
Most financial planners, and online calculators, focus on the break even point for your situation. That is, if you waited until age 69, for example, how old would you have to be before you would collect the same amount of money if you had started at age 67. As a former Certified Financial Planner, or CFP, this is the calculation I used to do for people as well. (More specifically, the company supplied financial planning software automatically calculated this number.) — Just FYI, for most people the answer is somewhere in your late 70s.
However, these days, I don’t really worry too much about that age. Technically, yes, finding the break even age, and then living past it, is the way to maximize your total overall benefit. But, what is the point, exactly? There are no rewards for getting the max benefit.
What actually matters is your current life situation and how that fits. If your retirement plan requires you to get a certain amount per month to work, then you need to wait until you get that amount. Otherwise, your monthly amount will be too low. Who cares how much money you collected in order to break even if the monthly amount you get won’t pay the bills. This is especially important for retirees who are still paying off their house as they retire. You’ll care a whole lot more about losing your house than you will ever care about “breaking even” from Social Security.
When Should I Start Collecting Social Security?
Forget calculators, planners, and spreadsheets, and look at your life.
- If you are still working, and you make a high income, then delay taking your benefit. Otherwise, you will get a reduced benefit anyway. If your income would not cause your benefit to reduce, then continue reading.
- Unless you are unable to live on your current income, do not take your benefit early, but…
- If it’s the difference between taking on debt, or losing your house, start taking the benefit.
- Do you need the money? If not, delay taking your benefit, but…
- If you are taking money from your IRA or 401k, stop doing that and take your Social Security benefit instead. Why? Because your Social Security money goes away when you (or your spouse) dies. This is true, no matter how long, or short your live. Your retirement account money can go to your heirs, or to charity.
- If it’s the difference between amazing vacations or visiting your kids or grandkids, consider taking the benefit… those things are easier and more fun when you are younger.
- Calculate exactly how much more you will get. For a lot of people, the monthly increase won’t add up to a better lifestyle, so why wait?
- If you are sick or dying start taking your benefit now. You can take it with you, unless…
- Your spouse will need to claim your spousal benefit.
- If your spouse will need the spousal benefit from you, always calculate that number before making any decisions, unless…
- You still have life insurance that will take care of the spouse.
Don’t Just Stick to the Plan
Remember that your life changes as you age.
I remember when I stopped really worrying about break even and started looking at the client’s life instead. A client came in wondering whether or not to claim a little early. Generally I recommend people wait until full age if they are still working, but in his case, by collecting 17 months early, he could pay his house off by making double payments with the money from the Social Security benefit while still earning his usual paycheck. There was no reduction in his benefit for continuing to work (although he did have to pay taxes on it).
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Even though he was pretty sure he would live past where the break even point, which would technically mean he would get less money overall, the difference was retiring with no mortgage right away, and far less expenses. In other words, instead of retiring and still making mortgage payments for a few years and trying to “live it up” around that, he would have no house payment right when he retired. Besides, he said, he’d rather have the money in his early retirement when he was still “spritely” (his word) than later when he might not be able to travel and go fishing as much.
When you are planning your retirement, while still more than a few years away, it’s good to know what your break even number is and plan accordingly. But, as you get into your 60s, start watching your life circumstances instead of calculators and spreadsheets. Chances are there will come a time when the decision almost gets made for you, such as when you have to retire for health, or other circumstances, or when you can see a specific windfall or lifestyle that you can achieve.
Either way, remember its your life, not a contest with Social Security.