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When is the Right Time to Start Taking Your Social Security Benefits?

September 28th, 2020

By Michael Macke, CFP®

When the Social Security program was first launched 90 years ago, claiming benefits wasn’t an overly complicated process. You had to be age 65 to start your benefits – and waiting didn’t get you anything extra.

Now, however, starting benefits takes much more thought. You can start benefits at age 62 or wait until age 70. The challenge is that if you decide to start taking Social Security income at 62 instead of waiting until 65 or even 70, your benefits are reduced and you could miss out on significant income over the course of your retirement.

So if you’re potentially leaving money on the table by taking benefits early, isn’t it a no-brainer to wait? Not always. Sometimes, people claim early because they lose their job or have to quit working due to family or health issues.

It’s also important to consider the state of Social Security itself. Many Americans question if the program will even be around when it’s their time to retire. As baby boomers continue to retire over the next 10-15 years, it’s estimated they will increase the number of people who are receiving Social Security benefits by nearly 30 million. By 2035, there will be approximately 2.2 workers contributing to Social Security for every one retiree receiving benefits – and the amount of money coming into the program won’t keep up with the amount of money going out.

There are also people who don’t think much about their Social Security benefits before retiring. They just want to be done working and they see Social Security as a safety net. In some instances, these people are filing before full retirement age and claiming benefits, not realizing that they could be shorting themselves in the future.

Instead of claiming Social Security benefits as soon as you’re eligible, you should take some time to give it careful consideration. There’s no magical formula for when exactly you should start benefits, but there are a few tools you can use to run some rough numbers.

Interested to find out when you should start taking Social Security benefits? Visit www.ssa.gov/planners/calculators.

There are also a few external factors you can examine to make the smart decision about when to file for your benefits. They are:

Your health and family history.

How is your health today? Do you have a chronic condition or past history with cancer, heart disease or some other illness? Do you have a family history of chronic illness or lives cut short? If so, you may want to consider starting benefits early and make the most of your life while you’re still relatively young and healthy.

But if you don’t have a past history of illness or your family members lived good, long lives, you might wish to delay filing as long as possible. By waiting until age 70 to claim benefits, you maximize your monthly income – putting more money in your pocket during your 70s, 80s and 90s.

Your spouse.

If you’re married, we help you plan for what happens if one spouse dies. If you’re both collecting Social Security benefits, the lower of the two payments goes away upon the death of the spouse. Also, if your spouse had a pension, that income could go away, depending on which survivorship option you chose at retirement. If Social Security will be a major source of income for the surviving spouse, then it’s important to maximize the higher earner’s benefit to ensure they have enough to live on throughout their lifetime. However, if the higher earner has poor health or family longevity, you might consider taking benefits early.

Your taxes.

Social Security benefits were originally exempt from taxes. Now, however, the IRS can tax your benefits if you hit a certain income threshold. If you receive a pension, continue working or receive distributions from a 401(k) or IRA, you need to pay attention to the total amount of income you receive from all sources. If you exceed the threshold, you could end up paying taxes on your Social Security benefits.

Your other assets.

How much you have saved in other retirement vehicles could be a critical factor in deciding when to take Social Security benefits. Do you have enough saved to cover your basic living expenses? Will taking distributions from those retirement accounts draw down your savings and leave you with little to live on later in life? These are important questions to ask as you consider starting or delaying benefits.

Your legacy.

For those wanting to leave something behind for their children or other loved ones, one strategy would be to claim Social Security benefits (which they can’t inherit) early and leave more money in your IRA (which they can). Alternatively, if you don’t need Social Security as a primary source of income, you could claim your benefits and use those funds to purchase life insurance. The proceeds of that life insurance could then be passed to your heirs.

The decision about when to claim Social Security benefits can impact your financial plan in a variety of ways. It can often be an overwhelming and confusing process; after all, there are a myriad of claiming strategies and rules to follow. While there isn’t a “perfect” time to claim your benefits, we can help you examine your options and make a decision based on what works best for your financial plan.