“When Is the best time to start taking Social Security benefits?” Retiring clients ask me this question more than just about any other. I often answer them with two questions of my own, “How long do you think you will live”? And, “Can you afford to delay receiving benefits?”
How Social Security benefits work
Most people receive their full social security benefit somewhere between age 66 and 67, also known as Full Retirement Age (FRA). Generally, benefits may be taken as early as age 62, but it comes with a price.
The benefit you would have received at Full Retirement Age (FRA) is reduced by as much as 30% or more if you start receiving benefits at age 62, resulting in a lower monthly payment for the rest of your life. Of course, the exact amount of your reduction depends on your age and other factors. To see a chart that shows how much your benefit may be reduced, click here.
Conversely, when you delay your benefits beyond FRA to age 70, your monthly social security check increases by as much as 25%. This results in a higher payment for life. In fact, if you live long enough you could collect more money per month and pocket more money over your remaining lifetime by delaying your social security benefits. Delaying benefits past age 70 provides no additional benefit.
So, the first question to answer is: “How long do you think you will live?”
You can pay a financial planner a lot of money to calculate the age at which you will “break even” by delaying receipt of your social security checks, but I have done this often enough to know that for most people the break-even age falls between 78 and 80.
According to the Social Security Administration, the average life expectancy for today’s 65 year old is 84.3 if you are a man; 86.7 if you are a woman.
Want to calculate your life expectancy? Click here.
Of course these are just averages. No one knows how much time they have left on Earth. If you are healthy and active and have the benefit of good genes on your side, you may live longer that most. Others may not.
But if you go with the odds, for at least half the people reading this, you are likely to live past age 80. If so, you may receive an increased monthly benefit as well as put more money in your pocket over your lifetime by delaying your Social Security check a little longer.
The second question to answer is: “Can you afford to delay receiving benefits?”
If you are 62 and considering retirement, your Social Security check may be a large part of your retirement income. Could you still afford to retire if you don’t receive these checks for a few (maybe as many as 8) more years?
For some people the answer is “no”. If you are set on retiring before age 70 (that would be most of us), you will need to create a plan to provide retirement income that can replace your Social Security benefits until a later age.
This may mean taking IRA distributions earlier, drawing income from Roth IRAs or even taxable, non-retirement accounts. Regardless of your strategy, you may need to come up with other money to replace your Social Security check.
For married couples, it could mean one spouse retires early, but the other still brings home a paycheck. Having a still-working spouse could provide enough income to allow you to hold off on Social Security and earn delayed credits on your Social Security benefits until you begin taking them.
If that’s not practical or realistic, delaying retirement or taking your benefits at a less optimal starting age may be your only options.
I have a client named ”Mary” who once told me that she would be taking Social Security at age 62 because the stress of her job made the idea of working longer nearly impossible. Her plan was to work until she “couldn’t take it any more” and then she would retire and start collecting Social Security.
Another client named “Tom” was in the construction trades and he confided that due to knee, hip and other physical problems, working past age 60 was going to be “physically impossible”.
Others have lost jobs late in life and failed to find satisfactory work.
Regardless of the reasons, there are situations in which it may be necessary, and even to your benefit, to take Social Security sooner rather than later.
Start planning now.
Social Security will likely change in the years ahead, but for most people age 55 and older it will still be an important part of their retirement income strategy. Knowing the optimal time to take your benefits and how to structure them can be complicated and the right answer will depend on your unique situation.
Creating a retirement income plan that includes Social Security planning and carefully considers all your options is the key to making the best choice for you and your family.