Sometimes it doesn’t pay to wait.
When it comes to taking Social Security income, common advice is to delay your benefit until age 70.
If you wait to take your Social Security retirement income until you turn 70, your monthly income is significantly more. According to the Social Security Administration, your award increases by 8% every year you delay after your “full retirement age” until you turn 70 (if you were born after 1943).
For example, my “full retirement age” for Social Security is age 67. If I wait until age 70, my monthly benefit will go up almost 25%.
To find out how delaying benefits would affect your retirement income, check out this SSA benefits planner.
Armed with that information, it seems like a no-brainer to wait until age 70, doesn’t it?
Obviously, everyone’s financial situation is different. At first glance, delaying makes sense. There are reasons, however, to take Social Security retirement income earlier.
You may want to take Social Security prior to age 70 if:
- You are already retired.
If you already retired, you may need to take Social Security to make ends meet.
If you delay Social Security to wait for a higher benefit amount, you may have to withdraw assets from your retirement accounts now. This may not make sense.
For example, if your Social Security benefit is $2,500 per month, and you delay taking it for two years, you’d be missing out on $30,000 a year in income, or $60,000 over two years. That’s a lot of money to come up with out of pocket.
Would you sell assets to cover your living expenses? If you aren’t working and bringing in a paycheck, it’s pretty tough to replenish your investment accounts. You may need to go back to work, and that defeats the purpose!
If you are retired and need the income, it may be better to take Social Security earlier instead of delaying until age 70.
- Your health is poor, or you don’t have a long life expectancy
Do you have longevity in your family? Women in my family don’t have a long life expectancy. Though I hope to buck that trend, I don’t plan on delaying my Social Security beyond my full retirement age.
Calculate your “break even” age. Let’s say that to get a higher Social Security amount, you skipped a few years of payments. At what age will the higher monthly income make up for the years you held off?
Step 1: Get an estimate of your Social Security benefit income at different ages.
To get an estimate of your Social Security benefits at age 62, full retirement age, and age 70, go to SSA.gov and use the Retirement Estimator.
Step 2: Find your “break even” age.
Crunch those numbers in the Social Security Break Even Calculator to find your crossover age.
For example, my estimate showed at age 67 my benefit would be $2,950. If I waited three years, my benefit at age 70 would be $3,707. The benefit of waiting until age 70 is an extra $757 every month for the rest of my life!
But don’t forget, I gave up $106,200 over three years to get that higher amount ($2,950 x 12 months = $35,400 x 3 years = $106,200). In my case, I’d have to live past the age of 81 to make up the difference.
My ‘break even” for waiting age is age 81. What is yours?
- Your spouse doesn’t rely on your Social Security benefit.
If you apply for Social Security benefits before your “full retirement age,” your benefit is reduced, but your spouse’s may be reduced, too. Your spouse has an option of choosing their Social Security benefit or half of yours (whichever is higher) when they apply for Social Security.
If your spouse plans on taking half of yours, you might want to delay your benefit until your full retirement age, since both of your benefits rely on your higher amount. Delaying further than your full retirement age won’t make a difference for the spousal amount (it’s based on the full retirement age, not the delayed credits).
In this case, talk to your financial planner to map out your Social Security strategy. It may make sense to delay to your full retirement age to maximize both of your benefits.
- You want to leave your Social Security to your kids or grandkids.
If you are in a good place financially and don’t need your Social Security income at all, congratulations! The good news about Social Security is if you pass away, your spouse receives some benefit. However, your kids, grandkids, and your favorite charities don’t receive any benefit (unless your children are minors) when you pass away.
If you don’t need the income from Social Security, but you want to leave a legacy to a family member, consider taking the benefit now. Do something with the money!
Invest the funds and name your children as the beneficiary on that account. Give a monetary gift to your children or grandchildren every year with the proceeds.
- You want to reinvest the money.
There is no law against taking your Social Security income and reinvesting it. You don’t have to spend it.
Granted, it would be a challenge to earn 8% on your money in an investment. That said, you can invest the proceeds and have access to your funds instead of waiting a few years and receiving no income in the meantime.
- You want to leave your full-time job.
If you take Social Security early (age 62 is the earliest age for retirement income), before your full Social Security retirement age, you can work part-time and it won’t affect your Social Security income. You can earn up to $17,640 (in 2019). Once you earn more than that amount, your benefits are reduced.
If taking Social Security early would allow you to live a “working part-time retirement dream life” you love, taking it early may make sense for you.
Take my husband, for example. He retired at age 64 from a stressful hospital administrator position and took his Social Security retirement income.
He now works part-time as a substitute teacher at the local high school a couple of days a week. In his case, he loves being involved in the community, helping out teachers, and interacting with the students.
Once you hit your full retirement age, you can earn as much as you want from a part-time or full-time job and still receive your full Social Security payment.
When it comes to taking Social Security, one size does not fit all. Just because your benefit increases each year you don’t take it doesn’t necessarily mean you should wait.
Weigh your own choices based on your personal situation. Talk with a financial planner about Social Security strategies, as these decisions should never be made lightly.
And remember sometimes a bird in the hand is worth two in the bush.