When is the best time to take Social Security?
Social security timing remains one of the most common questions we receive as individuals inch closer to retirement age. While the answer varies for each person, there are several factors that everyone should consider prior to taking their benefits.
Social security benefits can begin as early as age 62 or delayed as late as age 70. Your benefit amount will be adjusted based on the age you elect to start your benefit. In order to receive your full benefit (unreduced), you will need to wait until full retirement age. Due to legislation passed in 1983, full retirement age is a gradually increasing target.
• If you were born in 1937 or earlier, your full retirement age is 65
• If you were born between 1943-1954, your full retirement age is 66
• For those born after 1959, your full retirement age is 67
Starting your benefits early
Taking your benefits early results in permanently reduced amounts based on the number of months you received benefits before attaining your full retirement age. The reduction for early benefits depends on how early you take your benefits and the year in which you were born. The maximum reduction for age 62 benefits is as follows:
• 25% for individuals who reached age 62 by 2013
• 30% for individuals born after 1959
For example, if your full retirement age is 66 and you choose to begin taking benefits at age 62, your “age 62 early benefit” will be 75% of your full retirement age benefit. This reduction is due to you receiving your Social Security benefit for an additional 48 months.
Why delay your benefits?
The advantage of delaying your benefits beyond your full retirement age is that your benefit will be permanently increased based on the number of months you delay past your full retirement age. Delayed retirement credits accrue for any months delayed between full retirement age and age 70. The delayed retirement credits equate to about an 8% increase in your benefit for each year you postpone your benefit.
• If your full retirement age is 66 and you choose to delay your benefits until age 67, you would receive 108% of your normal/full retirement age monthly benefit because you delayed your benefits for 12 months
• If your full retirement age is 66 and you choose to delay your benefits until age 70, you would receive 132% of your normal/full retirement age monthly benefit because you delayed your benefits for 48 months
While the examples above show how your Social Security benefits could change depending on when you begin to receive your benefits, the exact adjustment is different for each person and is based on multiple factors.
Special Considerations
1) Social Security benefits are partly taxable, from 0% to 85% depending on your overall income.
• For single filers, if your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefit. If your combined income is more than $34,000, up to 85% of your benefit is taxable.
• For joint filers, if your combined income is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefit. If your combined income is more than $44,000, up to 85% of your benefit is taxable.
• Premiums for Medicare Part B and Part D will also be deducted from your gross benefit.
2) Availability of other assets/employment
• If you are considering retirement, it is critical to evaluate whether you have sufficient assets saved for retirement in order to choose an appropriate age to take your Social Security benefits.
• If you have sufficient retirement assets or are still working, you should consider taking Social Security at full retirement age (or later), depending on your anticipated life expectancy.
• If you do not have sufficient retirement assets, you may consider working longer (if you are able to do so) and wait to take your benefits until at least your full retirement age in order to maximize your long-term benefits.
3) Couples
• There are three types of benefits that apply to most couples: retirement, spousal and survivor. Retirement benefits are your own Social Security benefits. Spousal is a portion (up to 50%) of your spouse’s benefit. Survivor is a portion (up to 100%) of whatever your spouse was entitled to when he/she died.
• Each individual only gets one benefit, which is the highest of the three.
• The amount your spouse receives could be directly correlated to your benefit, hence the larger the benefit, the better for the spouse receiving either spousal or survivor benefits.
4) Breakeven and life expectancy
• Health and life expectancy are important factors to consider when evaluating an appropriate age to take benefits. Unfortunately, gauging one’s life expectancy is hard to predict, though family history can serve as an estimate.
• While taking Social Security later in life means you will receive less checks, the payment amounts will be larger. Knowing when you might breakeven for waiting to take your Social Security benefits can be another important factor (in conjunction with your projected life expectancy).
• The table below provides a general breakeven table. For top wage earners, the breakeven will depend on specific factors for each person.
