Perhaps one of the more difficult questions to answer from a financial planning perspective is what might be the optimal time to begin taking social security benefits. If we all had a crystal ball and could predict our own demise this would be an easy one. The reality is you need to understand your options and base your decision on your individual and family circumstances. If you need cash flow from a day to day living perspective, taking your benefits at full retirement (66) may make all the sense in the world and is a clear choice. We do caution taking the early retirement option at age 62 (before full retirement age 66) as you could be subject to repaying Social Security received. For example, if you are younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits. The SSA will deduct $1 from your benefits for each $2 you earn above $15,720. Other schools of thought rely on the statistics that females will live longer and thus delay collection on females until age 70 so as to maximize benefit returns.
As illustrated in the chart below, the longer you can delay taking benefits (through age 70), the higher the monthly benefit you will receive.
Chart provided by www.socialsecurity.gov
As illustrated above, the benefit would be 116% of the base if the individual starts Social Security at age 68. We have reviewed a variety of studies and actual cases. Ultimately, studies have shown that should either the husband or wife anticipate living longer than age 80, there is more potential lifetime income by delaying Social Security benefits beyond age 66. The longer a working spouse or survivor expects to live past age 80, the more beneficial it would be to delay payouts until age 70 when the maximum Social Security payout is achieved. We would counter this argument and look at things from a financial and a psychological standpoint. If collecting Social Security in earlier years when, potentially, you are healthier provides you better peace of mind and enjoyment, then irrespective of the numbers, your choice would be collecting early. This is an intangible with which we cannot argue.
It should be noted that delaying spousal benefits past age 66 does not further increase Social Security benefit payouts. The working spouse is required to first apply for Social Security before spousal benefits are payable. If you are full retirement age, you can apply for retirement benefits and then request to have payments suspended. This allows your spouse to receive benefits and the working spouse can earn delayed retirement credits until age 70. Often, for married couples, a strategy is to have the higher earner wait until age 70 to begin taking benefits. This allows them to earn that higher benefit both for their lifetime and for that of their surviving spouse.
Health and family history is an important consideration, as Social Security is similar to a vanishing annuity and terminates at death. Ideally, the timing of taking your Social Security benefits should be made in conjunction with normal IRA and retirement plan distributions along with your other potential income assets. Depending on your anticipated tax brackets, it may benefit you to start withdrawing from retirement funds and delaying Social Security benefits. We strongly recommend working in conjunction with your investment advisor and CPA to make the most informed decisions. We have Social Security decision calculators that can aid with providing you some concrete present value figures. While there may never be a clear and concrete answer to the age old question, at least you can put your best foot forth in making the most informed decision that may be best suited for your particular situation.