Social Security: When to Start Your Benefits?

Written by: Paolo Lapietra

While working with soon to be retirees on their financial plan, one of the most common questions I get is “When should I start taking my Social Security?” To wait or not to wait will be on the minds of many people getting ready to retire, and unfortunately there isn’t a concrete formula to answer this question. However, by informing yourself on the facts of Social Security, the options you have available and how these options will affect your financial situation in retirement will allow you to make a prudent decision.

The Basics

To qualify for Social Security benefits, you must work at least 40 quarters (10 years) with your maximum benefit amount being calculated from the highest 35 years of earnings. If you qualify for Social Security benefits, you may begin collecting anytime between the ages of 62 to 70.

Benefit Calculations

As I mentioned before, you may start collecting your benefits at any age between 62 and 70. One thing to be mindful of is your full retirement age (FRA). Your FRA is the age at which you become entitled to your full Social Security benefit. If you were born in 1960 or later, your full retirement age would be 67. So, what does that mean?

Well, if you decide to take your Social Security benefit before your FRA, you won’t be eligible for your full benefit. The way the Social Security Administration calculates this is by decreasing your benefit by 6% each year before your FRA. For reference, if your FRA is 67 and you begin taking your benefits at 62, you will receive approximately 70% of your FRA benefit.

Now on the flip side, if you decide to take your social security benefit after your FRA, your benefit will increase by 8% every year until you reach the age of 70.

One key calculation to consider in determining when to take your benefit is the ‘breakeven point’, or the point at which the amount you would receive if you claim later will equal the amount you would have received if you had started earlier. This is something we work with our clients to determine and can be an important consideration.

Questions to Consider

Understanding the basics of how your benefit will be calculated is the first step in deciding when to start your benefits. The next step is asking yourself three fundamental questions to understand which age will be the most beneficial to you.

• What is your life expectancy? It’s not only important to consider your personal health, but also your family health history as well.
• Will your Social Security benefits be your primary source of income in retirement? If you have limited assets to rely on during retirement, delaying benefits might not be the best option.
• If you do have enough assets to live on during retirement, are you comfortable with delaying your benefit to receive a higher monthly benefit? The decision on when you take your benefit is something that you need to be comfortable with. If you end up taking your benefit early and change your mind, you can pay back all the money you received within 12 months and withdraw your Social Security application. One thing to keep in mind, you are only allowed to withdraw your Social Security application once in your lifetime.

Decision Time

Deciding when to take your benefit is an important personal decision to make, but you don’t have to make that decision alone. I encourage you to talk to your advisor about the pros and cons on the timing of taking your benefit, and ask them to show you multiple cost-benefit analyses. Here at the Bouchey Financial Group, we aid our clients in this decision-making process through creating financial plans and implementing Social Security maximization charts. As I mentioned before, there is no set formula that tells you what the absolute correct age is to begin your benefit. But being versed in the principals of Social Security and working with your advisor will help you reduce any uncertainty in your decision-making process.