Timing is Everything: When to Take Social Security

Approximately 96% of American workers are covered by Social Security, and many more, including non-working spouses, are eligible for payment.  In addition, around 40% of the average retiree’s income in the United States comes from Social Security.

Thus, for most individuals, deciding when to take Social Security benefits will have a major impact on their abilities to live comfortably in retirement.

Do You Have a Choice?
A comprehensive, clear and accurate understanding of your financial situation, both now and in the future, is essential.  That understanding can only be gained through inventory, analysis and review of your requirements, circumstances and goals.

Evaluate whether your core needs and lifestyle spending require you to collect that monthly Social Security payment as soon as you retire or if you can afford to wait until you reach age 70, the point at which your benefits are maximized.

More than two-thirds of eligible Americans take their benefits early – after they reach 62 but before they reach full retirement age – often because they simply don’t have a choice: they need the money.  However, if you do have a choice, not collecting your Social Security benefits, even after you reach your full retirement age, may make sense.

If you do not need to take your benefits early, Quest can help you determine when you should take them. 

Key Factors Affecting Your Decision
Before deciding when to begin taking Social Security, you should consider a variety of factors.  These include:

1.    Other sources of income – Work with your financial advisor to evaluate the tradeoffs involved in taking Social Security benefits earlier and letting other assets grow untouched for a longer period versus dipping into other retirement assets immediately and deferring your Social Security benefits.

2.    Your taxable income – Tax-related factors could also affect your decision.  For instance, if your combined income from Social Security and other retirement resources reaches a certain level, your tax liability may increase.  Conversely, delaying Social Security may reduce your taxes.*

3.    Your work history – If you have not worked a full 35 years and you begin taking Social Security benefits early, those benefits will be less than had you worked the full 35-year period.  The Social Security Administration (SSA) provides no payments for the years you have not worked, reducing the annual benefits available to you.  In this case, deferring Social Security and working longer, whether part- or full-time, could be your best choice.

4.    Whether you plan to work in retirement – If you plan to work until your full retirement age, you probably won’t want to take benefits early.  That’s especially true because, if your income is about a level set by the SSA, your benefits will be greatly reduced.

5.    Your health and life expectancy – Should you defer you Social Security benefits until you reach 70, you will only reap the full advantage of doing so if you live past the age of 80.  Of course, you can’t predict exactly how long you will live, but lifespans are increasing, and, if you are healthy, you may receive more benefits if you delay taking Social Security.

6.    Your spouse – If you are married, the needs and situation of your spouse are also vital factors in your decision.  If you both have earnings from your work, you probably will both receive a monthly benefit.  The lower-earning spouse in often eligible for a spousal benefit up to one-half of the higher-earning spouse’s benefit.

If your health or age is such that you are likely to predecease your spouse, you might want to delay taking benefits as long as possible in order to increase his or her survivor benefits.  In today’s world, these benefits can be an important part of the survivor’s retirement assets, given that couples aged 65 have an 85% chance of at least one of them living past 85.**

Even if you delay taking your benefits past your full retirement age, your spouse can still take his or her spousal benefits anytime after age 62.  During your lifetime, your spouse is entitled to one-half of your full benefit if it would be greater than what he or she would receive from his or her own earnings.

Summary
Although Social Security is very likely to be an important component of your retirement plan, keep in mind that it is only one piece of the puzzle.  To gain maximum benefit for your retirement resources, consult with your financial advisor to make sure you’ve considered all of your options and evaluated their implications.

*Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation.  You should discuss any tax or legal matters with the appropriate professional.**Source: Society of Actuaries