Social Security is complex and when to take your benefits may leave you scratching your head. The reality is that “full retirement age” is a moving target and taking your benefits too soon may leave you and your spouse with less income than you need. So, let’s clear some of the confusion.
When do I take my benefits?
You can start taking benefits at 62 or wait until you reach 70.
What is “full retirement age”?
Full retirement age used to refer to the age of 65, but that is no longer the case. Now, it depends on when you were born. If you were born prior to 1950, then you have already hit full retirement age. If you were born between 1951-1954, then your retirement age is 66. If you were born in 1960 or later, then your full retirement age is 67.
Why shouldn’t I take my benefits immediately?
Your benefit is reduced based on when you start taking payments. For example, if you begin taking benefits at 62, but your full retirement age is 66, then your overall benefits will be reduced by 25%. That is not a small chunk of change. This may still be right call for you. But you need to analyze the benefits first to make that determination.
Why would I wait to take my benefits?
You get credit for delaying your benefits. For example, if you begin taking benefits at 68, but your full retirement age was 66, then you would get an 8% per year credit, resulting in a 16% increase in benefits. Again, this may or not be the right call for your situation, but it is something to analyze and consider.
What should I consider when deciding whether or not to take my social security benefits?
- Other Resources – if you have sufficient other resources to make ends meet, then you can be more flexible on when to take your benefits. If you need the income to make ends meet, then you have fewer options. You may consider working another year or two to help you reach full retirement age or longer to further maximize your benefits.
- Life Expectancy—the sooner you start taking checks, the longer you’ll receive them. There is no death benefit. It is a use it or lose it system. However, if you wait, you’ll also receive a greater amount each month. So, when do you break-even? If you begin taking benefits at 66 rather than 62, you may come out ahead so long as you live to at least 77-78. The break-even age goes up the longer you delay your benefits. With Americans living longer than ever before, it is important to evaluate your break-even age. If you have poor health, then it may be more beneficial to take your benefits sooner.
- Marital Status—if you are married there are additional strategies to maximize your benefits. For example, it often makes sense for the lower income earning spouse to take his or her benefits upon attaining full retirement age and then have the higher income earning spouse wait until 70. This helps leverage the risk and spousal death benefits.
Can I change my mind?
Yes. You do have the option of withdrawing your application ONCE. However, you do have to pay back the government what you’ve already received.
Will Social Security benefits exist when I retire?
No one knows. The current system is projected to have enough funds to cover payments through 2035 with no changes to the system. There have been discussions about resource tests, delaying benefit eligibility ages, and replacing the system entirely. No one can see the future. We recommend planning for what we do know and the system we have in place now.
Do I need to take benefits to qualify for Medicare?
No, you should still apply for Medicare at 65, regardless on when you take your social security payments. Delaying could end up costing you more money and time.
Clear as mud? Deciding when to take your social security benefits is not easy but having a good team of advisors to help you through the process makes it easier. You should be meeting with your financial advisor and estate planning attorney to ensure your planning goals align with your benefits. If you do not have your will or trust put into place yet, there is no better time to get it checked off your list. Call our team at 605-777-1772 to set up your no-cost initial meeting and take the first step today.
