Throughout my 26-year career, this question comes up quite a bit and is not always an easy one to answer. After all, you have 8 years to choose from (as early as age 62 and as late as age 70). Let me first say that everyone is unique, and decisions are not always financial-based. Some decisions are based on health, life expectancy, and spousal needs. There are pros and cons to starting Social Security early as well as taking it later. This article will explore taking it early and my next newsletter article will focus on taking it later.
Before we get started, you need to know your Full Retirement Age (FRA). Depending on when you start your benefits, they may be reduced for taking it early or increased if taking it late:
Taking Social Security at age 62
According to a study from the Center for Retirement Resource, this is the most popular age to start Social Security, 42% of men and 48% of women (below). Why do so many people choose this option – is it because it is the best? First, let’s talk about the people who should NOT take this option. The people who are still working full time or still not sure if they want to work full time. The reason is that your Social Security income is limited by earned income or what you earn from your job. In 2019 if you made over $17,640 and started Social Security before your full retirement age, you will lose $1 in benefits for every $2 over the limit.
For example, let's say Jane is age 62, her Social Security benefit is $600 per month, and she expects to earn $25,000 in 2019, or $7,360 more than the allowed earnings limit. Social Security would hold back $3,680 ($1 for every $2 above the limit) by withholding payments to her through July. For the first 7 months of the year, Jane would get $0 from Social Security. Starting in August, Jane would begin receiving her normal $600-per-month check through the end of the year.
Maybe you are thinking of retiring early now at age 62 (born in 1957) and want to start Social Security, your benefit would be reduced to 72.5% of the income you would have received at your full retirement age, which is 66 and 6 months (from the chart above). This reduced benefit does not go up to 100% when you reach 66 and 6 months, it stays reduced FOREVER! The chart below shows a current 62-year-old and the penalties and benefits of taking now versus waiting:
If you started collecting at age 62 versus waiting until your full retirement age of 66.5 you would collect 54 more monthly checks than if you had waited. If your normal benefit was $2,000/monthly but you start early at age 62, you would receive 27.5% less benefit or a monthly check of $1,450 or $550 less per month. With no cost of living adjustments from Social Security, you would have collected $78,300 over that time frame of 4½ years. The breakeven of taking it at age 62 versus waiting until age 66.5 is around age 75. The average life expectancy of a male (age 62 now) is age 83.4 and females is age 86.2. From a financial standpoint, you would have been better off waiting to collect. If you live lot longer than 75 the numbers look a ton better.
What is the best age to start Social Security?
Since no one on this planet knows how long we are going to live, the answer is that there is no one "best age" for everyone and, ultimately, it is your choice. Before you make this important decision, there are several questions that you need to ask yourself:
- Are you still working?
- Do you come from a long-lived family?
- How is your health?
- Will you still have health insurance?
- Are you eligible for benefits on someone else’s record?
- Do you have other income to support you if you decide to delay taking your benefits?
- Will other family members qualify for benefits on your record?
Financial planning is an art and a science and we here at New England Capital can help narrow down those choices and review the pros and cons with you. Social Security income is a part of your lifetime retirement income, but only a part of it. There may be times when it may make sense to start taking Social Security early. Maybe you are in very poor health (or terminally ill). Another possibility is that claiming early makes early retirement possible - since you have other retirement savings.
As Dwight D. Eisenhower once said, “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built. Thus, the individual's own work, his planning and his thrift will bring him a higher standard of living upon his retirement, or his family a higher standard of living in the event of his death, than would otherwise be the case. Hence the system both encourages thrift and self-reliance and helps to prevent destitution in our national life.â€
We can help you make an objective decision while looking at your whole financial picture and how your decision may affect you, your loved ones, or spouse for years to come. As always, please call our office to make an appointment to review any life changing events in your life, including this one.
PLEASE SEE IMPORTANT DISCLOSURE INFORMATIONat www.newenglandcapital.com/disclosure
