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When Should You Take Social Security?

When Should I Take Social Security?


I hear that question quite often. It's usually followed by this question: "Should I wait until my full retirement age to start collecting or should I start at age 62 or should I wait until 70?"

Let's get a couple of things straight. First, there is no one right answer to this question. It will and absolutely does depend on each individual's circumstances.

Second, odds are you are not going to beat the system. The government knows on average how long your life expectancy is and Social Security was designed to be revenue neutral. Meaning if you start taking payments at 62 you will have received the same total lifetime benefits had you waited until 70.

A very general rule of thumb is if you have family history that shows you have a god chance of passing early, take Social Security as soon as possible. If many of your relatives have lived into their 90's then maybe wait until 70 to collect.

Again, their is no black and white answer here regardless of what people tell you. Talk with a financial adviser and make a plan and include the timing of collecting Social Security benefits in that plan.

That being said here is a short example of how the math could work in your situation.

A Social Security Break Even Analysis


The timing of your Social Security benefits is somewhat important. It could make a difference of thousands of dollars in your retirement income. And though there are many factors to consider when making a decision about Social Security (more about that later), it’s fairly simple to calculate your break-even age. Let’s use an example to illustrate the calculation:

Joe has reached full retirement age and is deciding whether to begin collecting benefits now or to delay for one year. If he collects now, he’ll receive $1,000 per month. But like everyone else, if he waits to take his benefit, it will increase by 8% each year after his full retirement age. In other words, if Joe waits a year to apply for benefits, he’ll get $80 more, for a total of $1,080 per month. If Joe decided to wait that year, how long would it take him to break even?

Essentially, Joe has forfeited $12,000 ($1,000 times 12), but gained $80 a month. (For purposes of this illustration we’re intentionally ignoring the “time value” of money.) To find out his break even age, Joe would divide $12,000 by $80 a month, which comes out to 150 months or 12½ years. So, if Joe waits for one year, it will take him 12½ years to get back to even.

Therefore, if Joe thinks he'll live more than 12½ years, it could make sense to delay taking Social Security because he would eventually come out ahead. If not, he may want to take his benefits now.

If you’d like to perform this calculation for yourself, first determine what an 8% increase would add to your monthly benefit. Then determine how much money in benefits you’d give up by waiting, and divide that sum by the first one. You’ll get the amount of time (in months) it will take you to break even.

Other Factors to Consider before Collecting Social Security


Keep in mind, however, that this is calculating a simple break even point only. There are many other important factors to consider:

  • Your income needs
  • Your health status
  • Your plans to work after retirement
  • Your other retirement resources (investments, pensions, 401(k)s, etc.)

The decision regarding when to take Social Security is complicated, but it’s a decision that should be integral to your retirement planning, and one that many retirees tend to skip. According to Employee Benefit Research Institute, only 23% of workers try to maximize their benefits by planning when to claim Social Security.

So, once you’ve determined your break-even age, I encourage you to take the next steps: Consider your individual circumstances, get some guidance, and make a plan. You could save thousands.

At 80/20 Financial Services, we specialize in retirement planning. Please contact us today for a no obligation second opinion of your retirement plan.

Thanks for reading,

Brian Coleman/Investment Adviser