When To Start Taking Social Security

For all retirees, one decision you have to make is when to start your Social Security (SS) retirement benefits. You would think that would be pretty basic, but we do have the federal government involved here. Here are some of the variables to consider.

First, your age. You can start taking benefits as early as age 62, or you can wait until as late as age 70. If you start earlier, your monthly benefit is reduced. The actual reduction depends on how many months you start your benefits before your “full retirement age.” That age used to be 65, but now it’s on a sliding scale up to age 67 (depending on when you were born). But if you start your benefits at 62, you’re looking at a reduction of 20-30% of the full amount.

The benefit amount is based on your lifetime earnings. The SS system looks at your 35 highest years of earnings and uses a formula to compute your benefit. If you dropped out of the workforce for a few years (such as to raise kids) and don’t have 35 years of earnings, they will average in zeros—and that can lower your benefit. So if you’re close to 35 years and thinking of retiring soon, you may want to work a few extra years to get you to that magic 35.

Now if you want to delay your benefits, the SS system rewards you with higher monthly benefits. For every month you wait past your full retirement age, you get a bump up in pay that amounts up to 8% annually, again depending on when you were born. The latest you can wait is age 70; there’s no point in waiting past there because you won’t receive any more bonus increases.

So the question naturally is, when should you start taking your benefit payments? One easy answer is, if you need the money to make ends meet in retirement, then take it now. If you do take early benefits however, the SS system says that if you live longer than about 15-20 years, you would have been better off waiting until your full retirement age.

Be sure to factor in your current health as well; if it’s bad now, it probably makes sense to take early benefits. If your health is good and you don’t need the money now, then waiting may be a better choice in the long run.

The timing decision is even more complex for married couples, because of the potential survivor’s benefit for the spouse who turns out to live the longest. A general rule here for spouses who are roughly the same age is for husbands to delay taking their benefit. Assuming they’ve had higher career earnings, men typically pass away before women. If all that holds true, then a wife who outlives her husband would benefit from his delayed/higher SS benefits she would “inherit” as his surviving spouse.

As always, your circumstances are unique–so make this decision carefully to maximize your retirement readiness!

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About Mike Wilson

Michael L. Wilson, MBA, CFP®, CRC®, is the owner of Integrity Financial Planning. Prior to founding Integrity in 1998, he worked for two years as a faculty member at the College for Financial Planning in Denver, training other financial advisors. Mike has 10 years of experience in the mutual fund industry, having worked with Fidelity Investments and Invesco Mutual Funds. He holds an MBA in Finance from Baylor University. Learn more about his work at www.integrityplanner.com.
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