When Should You Start Taking Social Security?

By Marc Smith

Many people are trying to figure out when they should start taking Social Security payments. I’m hoping to simplify the process with some math and a few key thoughts to remember as you analyze your specific situation.

For most people considering Social Security currently, 62 is the initial age you can begin collecting a check and 66 is considered full-retirement age. Between the ages of 62 and 70, your monthly payment increases by 0.66% every month you delay starting payments. This works out to an 8% annual rate. That’s a pretty good return in this market, but does that mean you should wait?

If you continue to work and earn income after age 62, I see almost no reason to start collecting Social Security until you reach 66 years old. The income limits are so low that you end up losing a significant portion of your benefits. However, once you turn 66, you are able to work and earn an unlimited income without any reduction in your benefit. If you’re still working, try as much as possible to delay taking Social Security until age 66.

The single most important determinant in maximizing value received from Social Security is your life expectancy, which is obviously impossible to predict. However, if you’re generally healthy in your early-to-mid 60’s, you can make the assumption that living into your 80s is pretty reasonable. The math says if you believe you will live to less than 80-82 years old, you will maximize your value received by starting taking Social Security as soon as possible. That would mean at 62 if you are no longer working, and 66 if you continue working. If you expect to live to 90 or older, you are better served by waiting until age 70 to start taking payments, because you will collect enough months of the higher payments to offset the years you received no benefits. Between 82 and 90, there is a sliding scale that prefers delaying payments as you live longer. You can see my analysis in the link below, input your specific potential benefits and see different scenarios for your own decision.

In addition to the math, it’s important to remember that means testing is a near-certainty at some point in the next 10-20 years. Social Security tax revenue will not cover payment obligations in the coming years and it is possible that ‘wealthy’ retirees, or near retirees, will be asked to take a reduction in payments. Based on the definitions of ‘wealthy’ used in politics today, it seems possible to me that having a net worth of more than $500k could be enough to be labeled ‘wealthy’ and see a reduction in Social Security payments. While no one knows what will happen, I think this risk further suggests you should start taking payments sooner rather than later to maximize payments received before any potential benefit reductions.

While everyone has unique situations and their own very specific health situation, I think the data suggests starting payments at 62 if you have no other sources of income that will impact your benefits. If you do have income, waiting until you are either 66 to start benefits seems the right decision. However, if you come from a long line of people living well into their 90s, maybe waiting until 70 isn’t such a bad idea. Please feel free to contact me if you would like to discuss your specific situation further at marc@redwaveinvestments.com or 717-601-0651.

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