One of the most common questions I get asked is, “When should I start taking my social security?” Like most people, I’m sure you paid a lot into the system over your working lifetime, and you want to get the maximum amount for the longest period of time.
So, do you take the benefits early, or do you hold out until full retirement age (around 66 years of age)? Or, do you hold out even longer, perhaps to age 70, for an even larger payout? One factor is life expectancy. If we knew for sure when we were going to die, then it’s fairly simple math to calculate the best option. While you likely have no idea how long you will be here before you leave this earth, we can at least make an educated guess. For example, if you lead a fairly healthy lifestyle, watch your diet, and exercise, the chances are pretty good that you will beat the averages. That’s not always the case, but at least it gives you a fairly decent shot.
At the same time, family history is also an important factor. If most members of your family, and particularly your parents, lived to be fairly old, your odds of doing the same are pretty good. However, if few or none of your family members never made it past their 70s, then you might want to start your social security as early as possible.
When it comes to social security payments, the people in charge have done the math. It’s actuarially equal to them if Americans as a group take less money earlier or more money later. Based on average life expectancy, the expected cost to social security is the same either way. The question for you individually is whether you expect to live longer or shorter than the average American.
Based on today’s numbers, when choosing between retiring at 62 or 66, the breakeven age is a little over 77. In other words, the higher payout you get from waiting to 66 equals the longer payout you’d get from taking it at 62 by the time you’re 77 years old. If you expect to live longer than that, you’ve made a “profit” by waiting to take the payout later. If you die before then, you would take a “loss” as you wouldn’t have been collecting the higher payouts long enough to compensate for starting later (other restrictions apply when taking social security before 66). The breakeven age between starting social security at 66 versus 70 is between 82 and 83. If you expect to live past 83, it makes sense to wait until 70 to start taking social security payments.
But, there is more to consider than just numbers. Maybe you are on a tight retirement budget and you just need the money. You’ve got to do what you’ve got to do. Some people don’t care about the math and just say, “I want the money now so I can save it, spend it, or give it to my grandkids, church, or charity.” There are no right or wrong answers here.
One final factor to consider is the amount going to a surviving spouse. When one spouse dies, the surviving spouse will receive the higher of the two social security amounts, but NOT both. It might make sense to get the social security amount of one spouse as high as possible because that is the amount the surviving spouse will get.
If you’re like me and plan to still push the envelope at 100, then you might want to maximize the household social security as much as possible. It’s a lifestyle question that only you can answer. Of course, if I check out at 95 rather than 100 because of too many cheeseburgers, that’s five fewer years as a grumpy old man riding on a motorized scooter and yelling at young punks to get off my grass, but I digress.
Just remember, taking the money today means lower benefits later, so make sure you’re okay with that. If you’re still confused or have questions, please give us a call and we’ll help you run the numbers and help you decide.
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About Nick Massey
Nick Massey is President of Massey Financial Services in Edmond, Oklahoma. Nick can be reached at www.nickmassey.com. Investment advice offered through Householder Group Estate and Retirement Specialists, a registered investment advisor.