When Should You Take Social Security?

Many pre-retirees plan to have Social Security as part of their retirement income strategy. However, few plan ahead for when they want to start taking their Social Security benefits as part of their larger retirement plan.

You have three options for taking your benefits:

  1. Taking Social Security before your full retirement age (at or after age 62).
  2. Taking Social Security at your full retirement age (at age 65 or 66, depending on the year you were born).
  3. Delaying your Social Security until after your full retirement age.

Taking Social Security Early

Some people choose to start taking their Social Security benefits at 62, before their full retirement age. If you apply at 62, your benefits could be 25-30% lower than the primary benefit amount that you would have received at full retirement age.

However, for some, receiving reduced payments early on in retirement can be beneficial. For example, if you have immediate expenses that your savings won’t cover, enrolling in Social Security early may make sense. Alternatively, if a reduced Social Security payment could positively impact the tax strategy of your additional retirement savings vehicles, it may be worth considering.  But consider it carefully, as this reduction is permanent.

Taking Social Security at Full Retirement Age, or Delaying

Taking Social Security at your full retirement age, or even delaying when you take Social Security, is worth considering, as well. Although there are immediate financial benefits to receiving a reduced Social Security benefit before your full retirement age, waiting may result in even more positive financial rewards down the road. For example, if you choose to delay your Social Security benefits beyond your full retirement age, you could:

  1. Receive a higher monthly benefit amount, up to 8% more per year delayed.
  2. Give yourself more time to stay in the workforce.
  3. Use the extra time to create a tax strategy for your retirement income.

What Option is Best For You?

When you decide to take your Social Security benefits depends on a few different factors. These might include:

  1. What your current nest egg looks like. If you can delay taking Social Security because you have plenty of savings to create a livable cash flow, it’s worth considering.
  2. What type of Social Security benefit you expect. There are many different factors that could impact your Social Security benefit. If your benefit covers a large portion of your expenses, and you’ll be relying on it heavily as part of your retirement income, that will play into when you choose to start taking Social Security.
  3. How long you plan to work. If you plan to work into your 60s, you need to be aware that the IRS could tax a portion of your Social Security until you reach your full retirement age (if your income exceeds pre-specified limits). This might mean you need to delay Social Security.
  4. If you have a spouse.  It is wise to consider the benefits associated with one spouse claiming at a different time than the other, particularly if one spouse will receive a higher benefit.  Delaying can impact survivor benefits as well.

One way to help determine when to take Social Security is to work with a fee-only financial planner to perform a break-even analysis. Together, the two of you can determine how Social Security fits into your comprehensive strategy.

Want help? Contact us today. We’d love to talk to you about your retirement income plan!

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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