Social Security has always been a uniquely American Rorschach Test. Should you take what’s offered to you right now or wait a few years for what’s behind the curtain?
Fortunately, you don’t have to have visions of Monty Hall haunting your Social Security claiming decision. There’s actually a fairly reliable checklist you can go through to determine if it makes sense for you to start collecting your government pension as early as possible (i.e., age 62).
Here are five reasons why it makes sense to do so:
#1: You need the income
Face it, if you’re up against the wall and are plum out of options to collect money that will put food on the table, then you need to start receiving your Social Security funds as soon as you’re eligible.
Sallie Mullins Thompson, Principal/Managing Member, Sallie Mullins Thompson CPA PLLC in New York City, says you should pull the trigger on Social Security “if you’re not working and have no plans to seek a job, you have little to no savings/investments/retirement funds, and you have no other sources of income, such as from a trust fund or inheritance. This would generally be for a fairly dire financial situation.”
Of course, the situation need not be as dire as this, but you still might be experiencing a gap between what you have and what you need.
“If you don’t have enough assets to cover the difference between what’s provided by your retirement savings, streams of income or other sources of assets in retirement and your retirement spending requirements,” says Glenn Moore, CIO/CCO at Gordon Asset Management, LLC in Durham, North Carolina, “then it would make sense for you to take Social Security so you are not putting unnecessary stress on your retirement assets or your standard of living while deferring Social Security.”
#2: You have health issues
Beyond the raw mathematics of not having enough income, there are other legitimate reasons to begin receiving Social Security early. These reasons tend to be very case specific and often come with nuances that go well outside what a simple written checklist can adequately cover. It therefore makes sense to speak to an expert who knows your specific circumstances to determine if these reasons apply to you.
The expert who immediately comes to mind is your doctor. After income need, the status of your health comes most into play regarding your Social Security claiming decision.
“Health is always a consideration,” says Chuck Czajka, Founder of Macro Money Concepts in Stuart, Florida. “If you don’t think you’re going to live until the normal mortality rate, then it might make sense for you to begin taking Social Security before the age of 70. It wouldn’t make sense to wait until age 70 to get the most you can collect only to pass away shortly after.”
There are actually two factors at play here. First, addressing your health issues can cost money, money you don’t have. Second, there’s actually a “break-even” analysis that goes into determining if you should wait to claim Social Security. It’s a guessing game but it’s based on your life expectancy. In short, you need to live long enough for it to make sense (as in “dollars and cents”) for you to defer.
“If you’re in bad health, you may need the extra money that Social Security benefits provide—and you may want to claim benefits sooner rather than later,” says Lyle Solomon, Principal Attorney at Oak View Law Group in Rocklin, California. “And, unfortunately, if you believe you will not live to be extremely old, you may come out ahead over your lifetime.”
#3: You and your spouse are both eligible, but...
Things tend to get complicated if you’re married. If both spouses can claim Social Security, the timing of those individual claims (as well as the age of each spouse) will have a bearing on the decision of when to start taking Social Security.
“If you have the lower Social Security benefit in a couple, and especially if you are much younger than your spouse, then waiting until the maximum age probably won’t have much benefit for you,” says Jeremy Keil, a retirement-focused financial planner with Keil Financial Partners in New Berlin, Wisconsin.
Because of the variety of scenarios, here again it’s best to speak with a professional who has had experience in advising couples on Social Security claiming strategies.
“In some cases, one spouse is waiting to claim spousal benefits, which requires the higher benefit spouse to also claim so the other can piggy back on the other spouse’s benefit,” says John Hagensen, Founder and Managing Director at Keystone Wealth Partners in Chandler, Arizona. “Waiting on one in this situation can effectively make you wait on both if the spouse with the smaller benefit has little or no benefit on their own earnings record.”
#4: You’re concerned about survivor benefits
Somewhat related to the above is the complex concept of survivor benefits. The numbers and the variety of variables involved here can be burdensome, even if you have one of those “Social Security Calculators” at your fingertips. Here’s one example.
“If you’re retired at age 62, your spouse is younger than you, and your spouse earns less than you, your Social Security benefit could very well one day become theirs,” says Cory Bittner, Co-Founder and Chief Operating Officer at Falcon Wealth Advisors in Mission Woods, Missouri. “If you believe it’s likely they will outlive you, it may make sense to delay collecting your benefit, so the survivor benefit increases in value. However, if your younger spouse has health issues and it’s not a sure thing that they will live to be older than you, it may make sense to go ahead and begin collecting those benefits. If your spouse earns less than you, it’s possible their benefit may not get to its maximum potential until the spousal payment portion begins—which requires you to file for your own benefits. The spousal benefit does not increase upon full retirement age, so if your spouse is older than you, waiting to collect your Social Security could impact how many years your spouse is able to collect spousal benefits. And if your spousal benefit is less than half of yours, it may make sense to open your work record to pay a spousal benefit. Also, if your spouse earns more than you but your spouse is in poor health, it may make sense to begin collecting early. If your spouse passes away before you, your benefits will end when your spouse passes, and you will begin collecting your spouse’s benefits. But you’re not going to collect both. Delaying your own benefits and then delaying your spouse’s benefits so you can receive a higher survivor benefit may be outweighed by going ahead and beginning collecting.”
#5: You’re concerned about the future of Social Security
There’s an elephant in the room no one wants to talk about but must be considered. For years now the Trustees who oversee the Social Security program have been warning it will become insolvent sometime in the early 2030s. This will have a necessary impact on the government’s ability to make good on its promise.
What that means is pure speculation at this point, but there are those who foresee a reduction in benefits. If this happens, future payouts will be less than currently expected. This scenario, in effect, devalues deferring Social Security.
“Older people, particularly those nearing retirement age, are concerned about the future of Social Security; yet, they are unlikely to be affected much,” says Solomon. “Still, if the prospect of losing Social Security payments keeps you awake at night, it may be preferable to file early or at full retirement age rather than wait for a higher sum.”
The Social Security claiming decision is not one to be taken lightly. Even if you are certain of what you want to do, it’s best to review all the alternatives with your advisors because it’s nearly impossible to reverse the decision you ultimately make.
“Once you begin collecting Social Security, you are locked into your payment amount for the rest of your life (with the exception of annual cost-of-living adjustments), so this decision is very important,” says Susan Dover, Founder of Social Security Resource Center in Philadelphia. “A good question to ask yourself is whether you can afford to live on the reduced Social Security benefits for the rest of your life.”
One way to analyze the different scenarios is by exploring the reasons why it makes sense to wait until age 70 before taking Social Security.
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5 Reasons Why It Makes Sense To Claim Social Security As Early As Possible (Age 62) - Forbes
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