When Is the Best Time to Start Taking Social Security? Retirement Question No. 7
Deciding when to start taking Social Security benefits is critical in your retirement planning process. The decision is an important one, for it has long-lasting implications on your retirement income and possibly on the financial well-being of your spouse. Here are some key factors to consider.
SPOUSAL AND SURVIVOR BENEFITS For married individuals, the timing of initiating Social Security benefits becomes more intricate and demands careful planning. A delay by the higher-earning spouse in collecting Social Security benefits serves dual functions. First, the postponement increases their own Social Security benefit due to “delayed retirement credits,” which enhances the monthly payouts. Second, this decision elevates the survivor benefits the lower-earning spouse could receive.
AGE AND LIFE EXPECTANCY You’re eligible to commence Social Security benefits as early as age 62. However, taking benefits this early will reduce your monthly payout, sometimes by as much as 30%. On the other hand, if you wait until your full retirement age (FRA) — between 65 and 67, depending on your birth year — you’ll receive 100% of your benefit amount. Delaying your benefits even further, up to age 70, allows you to accumulate “delayed retirement credits,” increasing your monthly payment.
Specifically, if the higher-earning spouse passes away, the surviving spouse can claim the deceased spouse’s higher benefit instead of their own, essentially assuming the greater of the two amounts. While the higher-earning spouse is alive, the lower-earning spouse can also be eligible for a spousal benefit of up to 50% of the higher-earning spouse’s benefit at full retirement age. This can be a critical element of financial planning, especially when there is a considerable disparity in the earning histories between the two spouses. The choice to delay taking benefits can thus offer a financial safety net for the lower-earning spouse, providing them with an opportunity for greater income security, particularly
Life expectancy plays a crucial role when considering the best time to
claim benefits. Being in excellent health and having a family history of longevity may tip the scale toward delaying benefits to maximize the lifetime payout.
if they outlive their higher-earning partner.
FINANCIAL NEEDS AND LIFESTYLE Another critical factor to consider is your financial situation and lifestyle expectations. If you’ve accumulated adequate retirement savings, delaying Social Security may make sense since your investments can continue to grow. But if you need immediate income to sustain your lifestyle or have debts to pay off, taking benefits earlier might be the wiser choice. TAX IMPLICATIONS AND MEDICARE PREMIUMS The taxation of your Social Security benefits can vary based on your overall income level, including distributions from retirement savings, pension payments, and any part-time employment you may have. Delaying the initiation of your Social Security benefits could overlap with the period when you must start taking required minimum distributions from retirement accounts, altering your tax liability later in life. Moreover, your income level could affect your Medicare premiums, making it imperative to understand the interplay between these financial elements. Seeking advice from a qualified tax planner can provide invaluable insights into your unique financial landscape.
ECONOMIC FACTORS: INFLATION AND COLA Inflation erodes purchasing power. Thankfully, Social Security comes with annual cost-of-living adjustments (COLAs), albeit modest ones. These adjustments can compound over time, making a case for delaying benefits to receive higher COLAs in the long run. However, bear in mind that future COLAs are not guaranteed and can fluctuate with economic conditions. PSYCHOLOGICAL FACTORS The sense of financial security and peace of mind is another intangible yet essential aspect. Some people find the certainty of a monthly Social Security check comforting, especially if other sources of income are unpredictable. Deciding when to start taking Social Security involves numerous variables, including age, financial health, marital status, tax implications, and even psychological well-being. A one-size-fits-all approach does not apply here. At McBeath Financial Group, we take a holistic approach, considering all these factors to optimize Social Security within a comprehensive, goal-driven plan.
2 McBeathFinancialGroup.com
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