All you have to do is Google the phrase “When is the best age to take Social Security?” and you’ll get endless advice from people all over on the perfect timing for taking Social Security. Even though not one single advice-giver knows anything about you!
As a financial advisor who plans for people every day, it isn’t really that easy a decision; nor is there an exact science to follow, because every individual’s situation is different. For example, all of these questions – and more – can factor into the decision on timing:
- Are you married?
- How much older or younger is your spouse?
- Is your Social Security higher or lower than your spouse’s?
- Are you still working or are you retired?
- Do you plan to work while you’re retired?
- Do you need the Social Security income?
- How healthy are you?
- What is the short-term effect of taking it at 62, and what are the long-term effects of waiting?
- Do you like to gamble? (I’ll explain that shortly)
To start, full Social Security benefits are as follows:
In order to better discuss the issues, let’s assume that our example client is born in 1960. At the current age of 56, the client is not eligible for benefits until age 62 at the earliest, but will not get his/her full benefits until age 67. Let’s further assume the client’s historic earnings created a full retirement Social Security benefit of $2,500/month at the age of 67. Therefore, the details below represent his/her Social Security income breakdown, depending on the age at which they start taking SSI:
As seen above, taking Social Security at age 62 triggers a life-long monthly reduction of 30%, as compared to taking it at age 67. However, starting at age 62 gives the client five full years of income, versus starting at age 67. Also, there is a clawback of early Social Security taken if the client is still working and earning FICA wages of more than $15,720 (for 2016). Any excess overage would reduce Social Security by $1 for every $3 earned above the $15,720.
The chart below shows the life expectancy age-breakeven points for starting Social Security early, as compared to waiting until full retirement age, in terms of total dollars received, assuming full benefits of $2,500 a month for retiring at 67 are received.