When Should I Take Social Security? — 4 Questions to Ask Yourself Before Making a Decision
Wow. That is a whopper of a question. And with social security getting a lot more media coverage lately, it is a question on the forefront of many minds just like yours. Most experts will answer with a resounding “wait!” “Wait until your full retirement age!” Or even “Wait until you are 70!”
And I am inclined to agree with them on many accounts, but this only tells a little bit of the story.
The truth is that no one can offer you a definite yes or no, now or later, 62 or 70 answer. It depends on a great number of factors: your personal goals, convictions, health, and financial situation. This is why—instead of trying (and failing) to answer the question for you myself—I am going to offer you some guidepost questions for you to ask yourself. If answered thoroughly, the questions will lead you down a path to a good decision.
1. Will I Continue Working Full Time?
The first question you should ask yourself is whether or not you are going to continue employment. Because if you retire prior to your full retirement age, income matters when it comes to Social Security benefits. If you make it over the $16,920 a year earnings-test amount, Social Security begins reducing your benefit check. Having a higher income over your lifetime actually helps your benefits, but while you are receiving them—not so much. In fact, for every $2 over the earnings-test amount, $1 will be deducted from your benefits checks for the year.
Allow me to put this into perspective. This means that a $2000 a month check ($24,000 a year) can vanish very quickly. Let’s put it this way: a person making $64,920 a year (48,000 over the earnings-test amount) will have all of their benefits reduced to zero. It would be like they never signed up at all!
Part time work to keep you busy won’t usually reach the earnings-test amount, but—in almost every other case—I strongly recommend waiting.
2. What Resources Do I Have?
If you decide that you have had enough of your stressful job and decide to retire, you will no longer have a steady source of income. This is where drawing Social Security earlier can come in handy.
But there are exceptions. For example, If you have a strong enough financial situation, you can get by without your social security check and maximize your benefits no problem.
So check your storehouses. Do you have a sufficient nest egg? A retirement plan like a 401(k) or IRA? Investments? Pension income? In other words, do you have something to live off of while you let your Social Security benefits accrue? If not, then you need to take social security. But if you do, it might be a good idea to delay.
3. What’s My Life Expectancy?
It’s also important to remember that waiting to collect Social Security benefits is still a trade off. If you collect at age 66, for example, you will get more checks in the mail than if you wait until 70 (48 to be exact). But if you wait until 70, you will receive checks that are 32% bigger. The decision you are really trying to make is this: Do I want more, smaller checks now or fewer, larger checks later?
This is where life expectancy swoops in to help. If you live a long life, larger checks later is usually the better bet because you will likely reach your break-even point, the age when the larger check begins to benefit you. (For an in-the ballpark figure, the break even point for many people is 10-12 years after their full retirement age.) But if you don’t, taking more, smaller checks now is the right approach. You may not have time to wait. In that case, reap the benefits now.
In order to determine life expectancy, you can consider your current health status and your family’s history with longevity, but this would be a shot-in-the-dark speculation.
Instead, I recommend using a highly customized life expectancy calculator like livingto100.com. It takes into account everything from exercise habits, family history, all the way to how you barbecue your meats (not sure how this affects life expectancy) to create a truly personalized calculation. Of course, this is still speculation, but at least it is speculation based on carefully- researched scientific data. Not as much a shot in the dark.
4. Am I Married?
If you’ve been married for more than a couple weeks, you know that marriage changes everything. From finances to weekend plans to what you’re going to make for dinner, you’ve got someone else to think about.
Marriage also affects Social Security. For instance, you might have poor health and a bleak life expectancy. In this case, it might make sense for you to take out Social Security early. But what about your spouse? When you pass away, your spouse receives your full Social Security benefit. If he or she lives long, it may still be beneficial to delay.
And this is just one of quite a few examples.
A Final Thought
I would like to emphasize this point one more time: the question of when to take Social Security is not one-size-fits-all. It’s not strategic to delay benefits if you don’t have the means to do so. But the “I might die tomorrow anyhow, so I might as well take it now” approach is not the best either. In order to get to the right answer, you first have to ask the right questions. So analyze your situation, learn all you can, and—at the end of the day—sit down with an expert you trust to put it all together.
Need some help making decisions about Social Security? We are offering a workshop on Social Security planning on September 7 in our Sidney office. You can sign up by clicking here: Social Security planning workshop or by calling our office at 937-492-8800. As always, if you have any questions, feel free to call our office any time.