With Social Security, there are always plenty of questions to answer, but perhaps the most fundamental one can be boiled down to one word: When. When should you start taking benefits?
When do you turn on the income stream that is a lifeline for so many folks: As soon as possible — and with the lowest monthly benefit possible — at age 62? Wait until your full retirement age for full benefits? Or put it off until age 70 to earn delayed retirement credits and get about 75% more per month than if you had retired at 62?
To explore what might be the best option for you, let’s take a look at three people’s own personal decisions and the factors that helped drive them. Compare their life’s stories to your own to get some ideas of where to start when answering this critical Social Security question for yourself.
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1. A Cancer Survivor’s Decision to Take Benefits Early
In 2000, I had a client who was 59½ and found himself experiencing many life transitions. He was a two-time cancer survivor. His wife suffered two mini-strokes, and then she had a major stroke and died. He had always thought his wife would predecease him.
At age 59½, the company he worked for offered him early retirement with a generous severance package and health care for life. The severance funds he was awarded would take him to age 61. In general, I advise my clients to keep six to 12 months of cash reserves. Candidly, he had closer to six months’ worth, but with his annual leave/sick leave and incentive pay, that brought him up to 12 months. I told him that it was OK for him to take time off. He needed the time for himself. I assured him that he didn’t need to just take any job, rather he could be selective.
He did end up taking Social Security early, at age 62. I was a younger adviser, only in the business one year, but I learned so much from working with this client.
He eventually remarried. Cancer struck again, and this time it had spread to his liver. He passed away just shy of his 66th birthday. I attended his memorial service, and his wife told me, “Rita, thank you for being here. Most importantly, thank you for the five amazing years we had together. I miss him so much, but I thank you for the incredible memories. We visited Europe twice together before he became too ill to travel.”
Conclusion:
Many experts advise against taking Social Security at age 62 because their benefits would be permanently reduced. Today’s 62-year-olds will see a 27% reduction (and if you were born in 1960 or later, it would be 30%). But if you have health concerns or a medical condition and don’t expect to live as long as the typical Social Security beneficiary, it may make sense to claim early. For my client, it gave him the freedom to live the last years of his life happily.
Aside from health concerns, another key reason people may decide to take their Social Security benefits early is lifestyle or quality of life. Some retirees may not be able to delay benefits because they rely on them to maintain their standard of living.
One thing to keep in mind if you're weighing the decision to take Social Security benefits before your full retirement age and still plan on continuing to work: If you make too much, your benefits can be reduced. In 2018, people receiving Social Security benefits can lose $1 in benefits for every $2 earned that exceeds the $17,040 per year limit. In the year when individuals reach full retirement age, Social Security will reduce $1 in benefits for every $3 that they earn above $45,360 in 2018. Social Security only counts earnings before the month that beneficiaries reach their full retirement age. What’s your full retirement age? Social Security has a chart that spells it out.
2. An Independent Woman Waits Until Full Retirement Age
My client, who is single and 64, retired at age 62 but she didn’t start taking Social Security then. Instead, she set a goal to start claiming at her full retirement age of 66, in order to get 100% of the benefit she has coming to her. She is in amazing health. Her dad is 88, and still going strong. Susan has minimal debt, about $45,000 left on a 15-year mortgage, which she will pay off by the time she is 67. She lives modestly and is a great saver. She contributed the maximum amount to her 401(k) on a pre-tax basis (no catch-up though) and the maximum amount to her Roth IRA (including catch-up contributions).
Susan is very forward thinking. She purchased long-term care insurance through a group plan even before I met her (she started retirement planning with me when she was 54). Because she doesn’t have children, she was 100% comfortable purchasing a LTC policy. She didn’t want to be a burden to her siblings.
She is mainly concerned with longevity risk and wants to make sure her savings will last, but she also likes the flexibility of her plan.
Conclusion:
First, I think it’s important to decouple the decision to retire from the decision of to start claiming Social Security. Susan’s case shows how these decisions are separate and distinct. And she built in some wiggle room: Even if she decides she can’t wait until her full retirement age, she won’t experience as significant of a reduction in her benefits as she would have if she had started taking them when she retired. For her, the middle of the road is the right place to be.
3. Why My Dad Decided to Wait
My dad decided to delay taking Social Security. I write about my family a lot. I am a financial planner because of my dad. Dad was a scientific developer who entered the emerging field of IT in the 1960s. Dad was always thinking one step ahead. My parents are 14 years apart in age.
My dad was healthy, active and fit until he was struck with Parkinson’s disease. He realized that by deferring his benefit to age 70, he would lock in a larger benefit. He knew that most likely he would predecease my mom. So, by deferring his benefit, he was providing the largest benefit possible for her. My dad battled the disease for nine years and died in 2015. Mom misses him, but I am pleased to report that she is doing well financially and has someone special in her life.
Conclusion:
For married couples, it’s absolutely important to discuss Social Security claiming strategies. It makes sense for the spouse with the larger benefit to delay until at least their full retirement age to lock in the largest benefit for the surviving spouse. If you have longevity in your family and/or there is a large age difference between the spouses, it may also make sense to delay benefits.
The bottom line is that Social Security is more than a monthly check. It’s a valuable income stream that provides the following:
- Inflation-adjusted income
- Guaranteed income
- Survivor benefits
Social Security is the foundation of a retirement income strategy. The benefits provide security, and they receive preferential tax treatment. Finally, while the rules about claiming Social Security have changed, the rules for survivors (widows and widowers) have not. There are still major opportunities to help individuals when they are most vulnerable.
The decision of when to collect Social Security is very personal. Every client situation is unique. It may sound silly, but stories like this inspire me to listen to the goals, dreams, fears and concerns of every client.
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