Executive Summary
Many retirees choose to take their social security benefit as soon as possible at age 62. But is this the right decision? We all know that the longer you wait to get started, the larger your monthly payment will be. In fact, for every year you wait, you earn an 8% increase in the monthly benefit payment. But for those who DO choose to wait, the missed monthly payments can begin to add up (in their mind), which can cause some uncertainty and have retirees asking the question: “Am I losing money by not taking my Social Security benefit payment?”
The answer is simple yet very complex. How long are you going to live? Depending how long you live it “pays” more to get started earlier or later. In fact, there is a crossover point in your life when the total benefits from waiting are greater than the total benefits from starting early. But knowing how long you’re going to live is an impossible question. Additionally, it’s not all about lifespan, your goals are extremely important. Are you still working? Do you need the money? Are you married? Let’s take a closer look at this important question of when to take your social security benefit.
Do you need the money?
Still Working
If you’re still working, your social security benefit could be reduced if you’ve not yet reached your Full Retirement Age (FRA) and your income exceeds certain limits. Once you reach your full retirement age you can work and earn as much as you like, without a benefit reduction. But if you’re still working and earning income, do you need the extra social security payment?
Depending on your goals, you may decide to take the money early or later. For example, if you are still working and can cover living expenses, but would like to spend more (while you have your health), then perhaps taking the benefit early makes sense. However, if you have a spouse and desire a higher survivor benefit, then you will need to account for this goal.
Not Working
If you’ve decided that you’re going to fully retire, then you will need income to replace what you were previously earning. But before we discuss social security we need to ask one important question: Have you completed planning so that you know with some level of certainty that you can afford to retire? If not, then you really need to complete comprehensive planning before making a decision on social security.
Let’s say you have done this already. Depending on your needs and the size and location of your nest egg, you may be better off withdrawing money from your portfolio while you wait to take social security. The benefit of doing so is that your social security benefit increases at a tax-free, 8% rate, which is extremely difficult to earn in an investment. Be careful though, professional brokers (not fiduciaries) who are only concerned with earning commissions may recommend you take social security right away so they can maximize their benefit, instead of yours. This strategy is especially good for the higher benefit spouse where the goal is to maximize a survivor benefit (the one that lasts two lifetimes).
Break-Even Years
To calculate the age you need to surpass to make “waiting pay”, take the total cumulative benefits forgone by waiting beyond age 62 and divide that number by the annual increase in income due to delaying your benefits claim. The result is your years to break even!
How long will you live?
Personal Health
It’s tough to know how long we are going to live, however using statistics we can reasonably say that people who take care of themselves generally live longer than those who do not. And it’s not just exercising. Mental health and socialization are important aspects to longevity. Do you exercise regularly? Do you eat healthy? Do you have close friends and socialize with others? Depending on your answers, you can make an educated guess on your life expectancy.
Family History
One way people have traditionally guessed their life expectancy has been to look at their family history. If you have family members that experience longevity then perhaps your “genes” will help you experience the same. Likewise, if your family has a history of certain diseases, you should be on the lookout for those and (hopefully) change your lifestyle, but in the end you may end up in similar situations.
Advancing Medical Technology
Medical technology has been advancing at a rapid pace and life expectancy is increasing as a result. New human organs are literally being printed from 3-D printing machines. Immune cells are being “programmed” to fight cancer. With all of the advances in medical technology, the probability of living a longer life span is increasing.
Does someone depend on you?
Married
I’ve mentioned it a few times but if you are married and have the higher social security benefit, it could make sense to wait to take your benefit until age 70 (if possible). The reason is that your benefit at age 70 is the greatest monthly benefit you can possibly obtain. If an unfortunate event occurred and you were no longer around, your surviving spouse would receive the higher benefit. In a sense, you are “protecting” the higher benefit in case something happens to you. A popular strategy is to have the smaller benefit be taken early and the larger benefit taken later. That way, you can enjoy the income today while letting the higher benefit grow.
Single
If you are single then the answer becomes easier. Since you have no one that will depend on your social security payment after you’re gone, the prevailing factor is your life expectancy. Depending on your expectations of longevity, you can decide when to take your benefit.
So are you losing money?
We started by asking the question of “Are you losing money by waiting to take Social Security?” The answer? It depends. Hopefully though, after discovering the factors that go into deciding when and how to maximize your social security, you can make an informed decision on your next step.
Have Questions? Need an expert opinion?
If you have more questions I’m happy to help you. I make getting answers super easy, without having to talk to some high-pressure sales person. Just use the secure contact form to ask a question, or email me directly at John@EndowmentWM.com, and I’ll get back to you via email within 48 hours to help point you in the right direction. I also offer a free wealth discovery meeting where we can discuss your personal situation and make sure you’re on the right path. Remember, it’s free to contact me and we are fiduciary advisors putting your personal needs first and foremost.
Be great,
John Weninger, CFP®
Wealth Advisor
Endowment Wealth Management, Inc.
