Author: Stephen Dart
When Should I Take Social Security Benefits?
Social Security Benefits and Financial Planning
Social Security is the main source of income for the majority of elderly Americans. For about half of seniors, Social Security represents 50% of their income. Yet, when going through the planning process for those in their 40’s and 50’s, we are quick to make assumptions of when to trigger Social Security benefits without a great deal of thought. Start it at full retirement age (FRA)? Start it early? Wait until 70 years of age? It’s all an abstract idea at that point. However, as you get closer to retirement age, it is important to give this more consideration.
When to Take Social Security Benefits Is Unique to Each Person
Everyone’s financial situation and resources are different. Therefore, it is important to pay attention to your own facts and circumstances and not rely on the advice of well-meaning family and friends when making such important decisions.
Taking Social Security Early
Someone who chooses retirement or is forced into retirement without significant savings will have no choice but to start benefits as soon as they can. Unfortunately, a recent Census Bureau study suggest that roughly 1 in 4 seniors obtain more than 90% of their income from Social Security benefits. Many in this category are forced to take benefits early (before full retirement age), and therefore receive reduced benefits.
Taking Social Security at Full Retirement Age
Claiming at FRA, an age that varies depending on your year of birth, pays 100% of available benefits. Again, the existence, or lack thereof, of other financial resources may dictate taking benefits at this point. What if your life expectancy is not long? What if your spouse is planning on waiting until they turn 70 to begin benefits? Even though you can increase your benefits by deferring your commencement, there may be individual reasons to begin as soon as you reach your FRA.
Delaying Social Security Benefits Until 70 Years Old
Benefits max out at 70. Every year from when you reach FRA until age 70, benefits increase by 8%. At that age, your benefits are 132% of what they were at FRA. If you have sufficient income and assets to reach 70 without needing Social Security benefits, assuming ‘normal’ life expectancy, it may make sense to delay.
Waiting to Take Social Security Benefits at 70 Opens Other Doors
If you are waiting until the age of 70 to take Social Security benefits, there are other financial steps to consider during those three to five years between FRA and 70.
- If you continue to work, continue to add to retirement plans at work.
- Withdraw funds from deferred retirement vehicles such as 401(k) plans and IRAs. If you are not working during these years before claiming benefits, it may make sense to shift taxable distributions to lower taxable income years.
- If you do not need to spend the distributions from deferred retirement vehicles, consider doing a series of Roth conversions.
Review Social Security Options in Advance of Applying
Because everyone’s situation is different and there is some complexity of when to claim benefits, it is best to review your options in advance of your earliest deadline. If you have questions about your own situation, please contact me anytime at sdart@epwealth.com or use the form on my Advisor Bio page.
