When To Take Social Security, You Have a Choice
When you are eligible to start collecting Social Security rests largely on your individual situation. Some people can start taking the benefit as early as age 62 — or age 60 if you are disabled — or wait until full retirement age of 67 to collect the maximum benefit. Another group of people will put off collecting until they are 70 years old for even more. That is, if you choose to retire somewhere between age 67 and 70, you earn a “delayed retirement credit.” The DRC amounts to an 8% payout increase for each year you do not take Social Security up until you reach 70. This increases your starting benefit, which serves as the baseline for all future payment increases to keep up with inflation. So what’s right for you?
The decision of when to take Social Security will depend on whether you have other sources of income to draw from during retirement. If you have a strong investment portfolio or a traditional pension, you can consider delaying Social Security. If you need Social Security to make ends meet, then you can think about putting off retirement for a few more years or working part time to help you reach the full retirement benefit age. For those who are in poor health or have a shorter-than-average life expectancy, it makes sense to take Social Security sooner rather than later. If your family has a history of longevity, you may want to delay taking the benefit.
Your marital status is another factor in this decision. If you are married, consider your spouse’s age, health and benefits, particularly if they are the higher earner. At full retirement age, you can either take 100% of your retirement benefit or opt to take 50% of your spouse’s, depending on which is higher. Consider taking the benefit early if you are the lower-earning spouse, and your higher-earning spouse can wait to claim their benefit. If you are the higher-wage earner, you may want to wait until full retirement age so that your surviving spouse will receive the highest possible benefit. Keep in mind that Social Security benefits are taxable if your and your spouse’s combined income reaches beyond a specific threshold.
Look at the big picture
Whether you want to work in retirement is another issue. If you begin taking Social Security and have not reached full retirement age, $1 will be deducted from your payout for every $2 you earn above the annual limit, currently set at $23,400. Another reason to take your benefit early is that if you are still working and have reached full retirement age, the deduction drops to $1 for every $3 earned above the higher limit of $62,160. The government may adjust these amounts from year to year.
Know that you can change your mind and withdraw your Social Security application within the first 12 months. You will need to repay the government any benefits you received, including Medicare payments. You can restart the application process at a future date, but know that you can only withdraw your application once.
The bottom line is that you can delay taking your Social Security benefit for as long as you can to maximize your monthly benefit for as long as you collect. Contact an experienced financial planner or tax professional to guide you in making the right choice.
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