Blog

“When should I start Social Security? Should I take it now or wait until I’m 70?” We hear this question in almost every retirement planning meeting. It should have a simple answer, right? Well, a quick internet search presents you with millions of articles with conflicting recommendations.

“Always delay until your 70 to maximize your monthly benefit.”

              “Take your benefit as early as you can, who knows how long it will be around!”

              “Start Social Security the day you reach full retirement age – no sooner, no later.”

Is your head spinning yet? What’s the correct answer? Should I start early, at normal retirement age, or wait until I’m 70?

 
Why would anyone wait?

Before jumping in, let’s discuss some basics of social security and why anyone would consider waiting. Social Security provides a qualified participant with a lifetime income based on your 35 highest years of income. The Social Security Administration sets a “normal retirement age”, or NRA, based on your year of birth. If you were born after 1960, your NRA is 67.

You can take benefits as early as 62 or as late as 70. If you start your benefit early, your monthly amount is reduced for each month before your NRA. You could also face additional taxes and reduced benefits if you continue to earn an income. If you delay your benefit, you’ll receive an 8% increase for each year you wait up to age 70. The Social Security website covers this in more detail, but a bigger monthly paycheck for waiting a few years would be nice, right?

 
How should I decide when to start?

As with most things in the financial planning world, it depends. Here are a few questions to consider:

  1. How much income do I need? Tally up what you’ll need each month to survive and thrive before deciding which strategy is best.
  2. Do I plan to continue working? If so, how much income will I earn each month? Be conservative so you don’t plan yourself into a corner should you decide to work less.
  3. Do I have other income? Pensions, rent, and other fixed income sources could reduce or eliminate the need to take your benefit at a specific time, freeing up choices.
  4. How is my health and how long do people in my family live? The sooner you start your benefit, the more paychecks you get, though each check is smaller. We call this a breakeven analysis – how long would you need to receive those bigger paychecks to make up for the ones you would have received by starting earlier. Examine your health and history to see how long folks in your family tend to live.

With these questions in mind, we’re ready to look at each scenario.

 
Who should take Social Security early?

I should consider taking Social Security early if:

  • I won’t earn income past age 62, by choice or circumstance.
  • I need the income to pay my monthly bills.
  • My other sources of income or investments will not fill the gap.

In short, if you are retired and your retirement funds need more time to grow before beginning the ‘draw down’ phase or you simply need the income now, early benefits might be your best choice. This would allow you to source retirement income from Social Security and give your portfolio a few extra years to grow to be able to better support your retirement income needs.

However, if you’re still earning more than $18,000 per year or if your spouse is still working, taking Social Security early reduces your benefits and increases your taxes. If this is you, consider waiting.

 
Who should take Social Security at Normal Retirement Age?

I should consider taking Social Security at Normal Retirement Age if:

  • I will continue to earn income at least until my normal retirement age.
  • I likely have enough other income sources or investments to cover most gaps, but I’m still concerned about running out of money.
  • I have health concerns, or my family doesn’t have longevity much past our mid-80’s. In most cases, if you wait until 70, you’d need to collect those higher paychecks until your early-to-mid 80’s to break even (unless, of course, you’re investing those paychecks along the way!)

A dollar today is worth more than a dollar tomorrow. So, if you’re concerned about running out of other investments, taking Social Security at normal retirement age can preserve the funds you have today. But, if you have plenty in reserve and a shorter life expectancy, taking benefits at normal retirement age could be for you.

 
Who should take Social Security at 70?

I should consider delaying Social Security to age 70 if:

  • I will earn income at least until my normal retirement age or beyond.
  • I have plenty of other income sources or investments to fill any gaps.
  • I’m healthy and have longevity in my family.

It’s a bit of a gamble since no one is sure how long they’ll live. But taking that higher paycheck can be quite nice and, if you receive it for long enough, you’ll be glad you did!

 
An integrated approach.

We should never take any single action in isolation, as each affects all the others. We look at taxes, expenses, investment balances, income sources, and longevity. We analyze each Social Security option to determine which one is worth more to you today. This requires assumptions for investment returns, inflation, and your life expectancy, but helps clearly evaluate your options.

During all this analysis, though, don’t forget to voice your personal preferences! You might have plenty of investments but prefer to take your income early. We evaluate if one option “makes or breaks” your plan and, if not, preference is the deciding factor in many cases.

Starting Social Security is an exciting time in a retiree’s life! Choosing blindly can lead to trouble, be it taxes, loss of benefits, or income shortfall, but a comprehensive plan can help you make the best choice. And while this can be a complex process, fortunately you’re not alone! Your financial planning team should be equipped to review this with you and provide the confidence that you are starting Social Security at the right time for you and your family.

Alterra Advisors - Josh Whelan

Ryan Colis

CFA, CFP®
Partner, Financial Advisor

About the Author

Ryan is a problem solver. He has a distinct ability to create a simple solution for very complex puzzles. So, naturally, he’s an integral part of our team. His favorite part of his role at Alterra is the analysis – whether analyzing a financial plan or reviewing an investment portfolio. However, the profession allows him to share that passion with clients by helping them navigate financial complexities as they collaborate on achieving their personal and financial goals.

After completing his undergraduate degree in Business Management, Ryan and Grant met by chance, developed a rapport and have been working together ever since. Ryan has continued his formal training in finance by earning his CFP and CFA designations.

The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.