When Should I Take Social Security?

April 29, 2021 | Social Security Strategies

The question, “When should you take social security?” sounds ludicrous at first. The benefits are there to assist retirees, so you should benefit when you retire, right? 

It’s not that simple, however. 

While you can start claiming benefits as early as 62, you might be better off waiting until age 70 in terms of overall benefits. In this article, we’ll explain more about when you should claim your Social Security retirement benefits,

Have I Reached Full Retirement Age? 

Ideally, it would help if you tried to hold off on claims until reaching full retirement age (FRA). This age depends on when you were born, since it’s in transition. According to the Congressional Research Service, “The FRA is increasing gradually from 65 to 67 over a 22-year period (for those reaching age 62 between 2000 and 2022). The FRA will reach 67 for workers born in 1960 or later (i.e., for workers who become eligible for retirement benefits at age 62 in 2022). Currently, the FRA is 66 and 10 months for workers who become eligible for retirement benefits in 2021 (i.e., workers born in 1959).” You may confirm your FRA with the Social Security Administration.

Is It a Good Idea to Claim Early? 

It’s not usually advisable to do so. With Americans’ average life expectancy increasing, those benefits may need to stretch further than with any previous generation. 

If you start taking Social Security earlier than the full retirement age, your benefits will decrease. 

You could lose as much as 25% of your monthly benefit if you start taking Social Security early. 

Is There Any Incentive to Waiting Until After Full Retirement Age? 

By waiting you’ll receive a benefit about 8% higher for every year you wait past 62.

If you’re in good health, it could pay you to wait until 70 to start collecting benefits. The increased payment is permanent. However, it may not always provide the best solution.

What Should I Consider Before Deciding? 

Before someone asks, “When should you take Social Security?” they should consider the following points. 

  1. How long the benefits will last

Your work history determines how much you’ll receive in total. The earlier you start drawing Social Security, the sooner the benefits might run out. If you’re in robust health, you may need some other form of retirement planning to supplement your income. 

  1. Your cost of living

If your retirement income doesn’t cover your basic costs, you may not have a choice about when to start collecting benefits. 

The alternative is to continue working, even if it’s just part-time. Whenever possible, continue working if it means being able to put off drawing Social Security. It also gives you a little more time to build up savings and gives you something to do. 

  1. Your break-even age

In investment terms, “breaking even” is getting the best “deal” by waiting until the optimal moment to claim Social Security. Waiting to collect your benefits until later in life means receiving a larger check every month. 

It’s a bit morbid to consider, but if you’re in poor health, it could pay you to take what you can get early. Delaying social security payments makes better sense for those with a longer life expectancy.  

  1. Survivor’s benefits

If you’re married and your spouse is dependent on you, you might want to consider the impact on them if you die. They may claim your benefits early, but identical reductions will apply for them as they would for you. It may make good fiscal sense to delay claiming to maximize your spouse’s benefits. 

  1. Whether or not you still work 

Claiming benefits early while working reduces your monthly payment. “If you are under full retirement age for the entire year, [SSA] deducts $1 from your benefit payments for every $2 you earn above the annual limit. For 2021, that limit is $18,960. In the year you reach full retirement age, [SSA] deduct $1 in benefits for every $3 you earn above a different limit. In 2021, this limit on your earnings is $50,520.” Once you reach the average retirement age, this deduction no longer applies, and you’ll receive full benefits. 

  1. The tax implications

The IRS might expect a cut of your monthly payment, so it’s best to establish what your tax situation is upfront. If the benefits push you into a higher tax bracket, it may not be worth claiming.

When considering your overall taxable income, don’t forget that you must add investment income and interest. You’ll also need to declare any rental income you receive. 

Should I Claim Social Security Early or Not? 

It’s a complex question that requires much thought. No one can predict what will happen tomorrow, so meeting with a financial planner can help you weigh your options more thoroughly. 

It may make sense to claim early if: 

  • You cannot survive on your income and cannot work to make up the difference
  • You or your spouse are in poor health and have a lower-than-average life expectancy
  • Have a lower income than your spouse, and your spouse won’t have to rely on your benefits

It may make sense to wait to claim if you: 

  • Are still at work, and your Social Security and investment income could increase your tax burden
  • Work part-time and earn over the annual limit
  • Are in good health and likely to live longer than the average person
  • Earn more than your spouse and want them to get the best benefit
  • Have sufficient income to wait it out

If you’re still unsure how to answer, “When should you take Social Security?” our team at Fulfilled Finances will be able to clarify matters for you. Contact a member of our team at (916) 745-5783 or via the website. You’ll receive effective, empathetic support aimed at helping you to live your best financial life. 

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