When to Take Social Security Sooner Rather Than Later

The longer you wait to start receiving payments, the bigger your monthly check. But here are other factors you’ll want to consider.

(Image credit: BraunS)

When planning for retirement, you must decide when you want to start collecting Social Security. This decision can have a significant impact on your retirement income, so it’s important to have a strategy.

Unfortunately, some financial advisers aren’t terribly knowledgeable about Social Security because they don’t work exclusively with retirees. Despite that, there are plenty of people who make it their business to understand Social Security’s intricacies: eligibility ages, the advantages of waiting to take benefits, different spousal and survivor options, switching techniques, taxes and other factors.

The problem is that many of these knowledgeable people may apply their knowledge like a cookie-cutter, thinking everyone should approach the system the same way. They usually aren’t financial planners who know how to take all of those options and custom-check them for a retiree’s unique situation.

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That’s something to keep in mind as you plan for your retirement. Simply put, there’s no one-size-fits-all model for Social Security. You need to look at Social Security through the lens of your specific retirement goals to develop the best strategy for you.

You are eligible to receive Social Security as early as 62, but you can also wait as late as age 70. Everyone also has a “full retirement age” (FRA), which you reach at 66 or 67, depending on when you were born.

From 62 to your FRA, Social Security grows by 6.67% for each year you refrain from collecting. From FRA to 70, Social Security grows by 8% per year. So, you get a much larger paycheck if you wait until you’re 70 to start collecting than you would if you started collecting early at age 62. However, that’s also eight years of missing out on a paycheck, compared with an extra eight years of collecting Social Security.

Many investors want to know — if they decide to wait to collect Social Security until they’re 70 — how long it will take to break even. The formula’s complex, but what it boils down to is that almost everyone breaks even at or near the age of 80. This means if you wait until you’re 70 to start collecting Social Security, every year you live past 80 will get you a higher total Social Security payout over your lifetime.

Often, people only look at benefit amounts and life expectancy when they are checking into Social Security. But there are other factors to consider. Let’s say you want to retire at 62 and you want about $5,000 a month of total retirement income. If you don’t have pensions or rental incomes, you only have Social Security and your investments to come up with that income. If you don’t take Social Security, you will spend down your investments sooner than if you did take Social Security. This means you will have less money to invest, and the investments will earn less money over time.

Most investments — stocks, bonds, mutual funds, etc. — grow on a percentage basis. An investment that generates an 8%-10% annual return will do so whether you have $1 million invested in it or $1,000. However, 10% of $1 million means $100,000 in earnings, vs. only $100 in earnings on a $1,000 investment. Therefore, by preserving your assets, you can earn much more over time.

The bottom line is by waiting to take Social Security, you will get more Social Security dollars once you live past 80. However, waiting to take Social Security can cost you even more in investment dollars over time than the extra Social Security dollars you would, indeed, get.

There are other factors to consider as well. Depending on your overall income in retirement, Social Security could be either tax-free or as much as 85% of your benefits could be taxable. Individual retirement account (IRA) money is taxed dollar for dollar. So, depending on how you take Social Security and integrate it strategically with other accounts, Social Security can help you be tax-efficient or hurt you.

Last factor to consider: Social Security is not inheritable, but your assets may be. Looking at two different Social Security strategies, one that preserves your assets and one that drains them, is something to consider.

There are plenty of situations where it makes sense to defer collecting your Social Security as long as possible. If you do not have any savings or assets and expect to live past age 80, then you should plan on waiting as long as possible to take Social Security. However, if you have a good amount of savings and investments, then you should strongly consider if it’s better to take Social Security early, dependent on the factors mentioned in this article.

Before making that decision, however, you should understand all of the rules and options of Social Security, figure out when you are looking to retire, your overall income needs, other sources of income, your overall savings, your tax situation, now and in the future, and your legacy goals. Only by taking all of these factors into consideration can you truly make a well-informed Social Security decision.


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Bradley R. White is the vice president of Epstein & White Retirement Income Solutions LLC. White is a Certified Financial Planner™, an Investment Adviser Representative, an insurance professional, and has passed his Series 66 securities exam.

Kevin Derby contributed to this piece


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Bradley White, CFP™, IAR
Founder and CEO, Epstein and White Retirement Income Solutions

Bradley White is founder and CEO of Epstein and White. He's a Certified Financial Planner™ and has a bachelor's degree in finance from San Diego State University. He's an Investment Advisor Representative (IAR) and an insurance professional.