Intelligent Retirement Planning and Investing Strategies for Discerning Women and Couples Nationwide Age 50+

The Social Security Dilemma

Social Security was never meant to be the sole source of your retirement income, but it is still one of the most important retirement decisions you’ll make. First, the decision is irrevocable. Once you make it, you can’t change your mind. Second, the initial amount of money you receive from Social Security acts as a base amount from which all future increases will be calculated over your lifetime.

While the right choice is different for every individual and every situation, here are a few of the most common questions I get, and the answers that often help provide clarity.

Should I take Social Security at 62 or later?

Before you try to answer this question, find out your normal retirement age (your NRA, or the age at which 100% of your Social Security retirement benefits are available without reduction). 

For those born in 1937 or earlier, your NRA is age 65. For those born after 1937, NRA gradually increases until it reaches age 67 for people like me, who are born in 1960 or later.

If you choose to take Social Security before your NRA, your monthly benefit is reduced to reflect the fact that this income will now be paid over a longer period of time. If your NRA is 65, for example, collecting Social Security at 62 will reduce your monthly payout by approximately 20%. If your NRA is age 67, collecting at 62 will reduce your payout by about 30%.

Conversely, your benefit will be increased each year you wait beyond your NRA to take Social Security, up to age 70. For example, if you were born in 1943 or later, your monthly benefit will increase by 8% for each year you delay receiving benefits past your NRA up to age 70.

So when should I take it?

I’m a big believer in separating the decision of when to retire from the decision of what to start taking Social Security. These two events don’t have to happen at the same time!

If you’re mathematically inclined, you can do a break-even analysis at the Social Security Administration website (http://www.ssa.gov/OACT/quickcalc/when2retire.html). This will estimate the age when the total value of your higher monthly projected benefits (from delaying the receipt of a monthly Social Security check to age 63 or later) will be greater than the total value of a lower monthly benefit (from receipt of a monthly Social Security beginning at 62). 

From my experience, people in poor health or with a short life expectancy may benefit from taking their benefits beginning at age 62, regardless of what the break-even analysis says. 

Additionally, if you need the cash now, by all means take it. But if you don’t need the money now, you’re in good health, you’re still working and you have a family history of longevity, you should at least consider waiting a few years or to your NRA, because the odds are you’ll collect more over the long term. 

In short, if you think you’ll live at least until age 77, consider starting your Social Security benefits after age 62. If you think you won’t live to age 77, consider taking benefits at age 62 or age 63.

Can my Social Security benefits be reduced or taxed?

Surprise, Surprise! Your Social Security benefits could be reduced and/or subject to income taxes. You’ll need to check with your accountant or tax preparer on that one.

If you are still working when you begin taking Social Security benefits (before your NRA) and your wages exceed certain limits, your payout will be temporarily reduced. The good news is, once you reach your NRA, there is absolutely no reduction in your monthly Social Security benefits regardless of how much money you make. In general, if half of your Social Security income plus your modified adjusted gross income (which is often the same as your adjusted gross income, or AGI), exceeds certain limits, then a portion of your Social Security benefits could be taxable. 

I’m married. What should I consider?

If your spouse is a few years older or earned considerably more than you, you may want to encourage them to wait until age 70 to collect their benefits (or vice versa). That’s because your benefit will be based upon your spouse’s earnings record when your own monthly Social Security benefit would not equal or exceed 50% of theirs. Delaying their Social Security to age 70 could mean a substantially higher monthly income for you for the rest of your life, which is especially important if you outlive your spouse.

And since Social Security could be your only source of inflation-protected income, the decision of when to take Social Security shouldn’t be taken lightly. Contact the Social Security Administration for particular details about your own situation by calling 1-800-772-1213.

I’m in my 20s, 30s or 40s. What should I consider?

Let’s face it. Increased longevity and the number of people eligible for monthly benefits will grow exponentially over the next three decades. The long-term viability of Social Security is a perennial debate, but hopefully Washington will address and remedy this issue once and for all. 

Whatever changes occur, you can bet that people who are in their 20s, 30s and 40s now will either receive fewer benefits, wait longer to collect them, or pay more into the system to receive them.

Social Security will not disappear from our national landscape, but it could end up looking very different. So take your financial responsibility into your own hands and start saving more money for your retirement today!

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