By Byron Moore, posted August 22, 2017
Originally published in the News Star and the Shreveport Times on Sunday, August 20, 2017.
Q: When should I begin taking my Social Security?
A: If you’ll tell me how long you’re going to live, I can give you a perfect answer to that question.
For everyone else, we’re going to have to make an informed guess.
But I’ll go ahead and show my hand…if possible, I recommend folks at least consider waiting as long as possible.
Workers who have paid into the Social Security system for at least 40 quarters (10 years total) are eligible to begin receiving benefits at retirement. Social Security identifies your “normal retirement age (NRA)” as the time full Social Security retirement benefits are payable.
For example, anyone born after 1960 has an NRA of age 67.
A retired worker may also elect to receive their Social Security retirement benefits as early as age 62, but not without a cost. Benefits are reduced by 8% each year a worker chooses to take her benefits early.
That’s what most Americans do…the most common age for workers to begin receiving Social Security retirement benefits is age 62.
So, for example, suppose my Social Security retirement benefits would be $1,000 per month at my normal retirement age of 67. If I do what most Americans do and choose to take those benefits early at age 62, they would be reduced to about $750 per month.
On the other hand, if I choose to wait to take my Social Security benefits until age 70, my benefits actually increase 8% each year that I wait. In the example offered above, my $1,000 that I would have gotten at age 67 would increase 8% annually until it was worth $1,320 per month by age 70.
If Social Security is all you’ve got, you may have no other choice but to begin receiving benefits early…even if they are reduced by 25%. Yuck.
But for those that may be able to delay taking their Social Security benefits, here are a few other things to think about before you pull the trigger and take your benefits early.
Hybrid retirement. Maybe you’re trying to make an all or nothing decision. Work 40 or 50 hours a week at a job you no longer love…or retire to a place where every day is Saturday.
As nice as that might sound, you’d better be sure the Saturdays don’t come to a crashing halt way before you do. Consider working part time to earn the income you would have earned taking your Social Security early, thus allowing your benefits to grow. And speaking of that…
Ideal investment. Where else can you go to get anything that will grow 8% per year, risk free, and is back by the government? Heck, it IS the government. If you’ve got other money not performing quite that well, consider building an…
Eight year bridge. If you cannot (or will not) use work as a way to avoid having to start receiving your Social Security benefits early, consider spending other, lower performing money first.
Using our numbers above, if you chose not to take $750 per month of benefits early, you would have to spend that out of savings. That’s $9,000 per year for 8 years, or $72,000.
If I take my $750 per month of early Social Security benefits, I can leave my $72,000 in the bank to grow at 1% for eight years and have about $78,000 by the time I reach 70.
Or I can spend $750 per month out of my $72,000, depleting it by age 70, then start up my delayed (and multiplied!) Social Security benefits of $1,320 per month (75% greater!).
Better with age. But by far I think the most important yet overlooked reason for delaying is that guaranteed monthly income becomes more and more attractive, as compared to the alternatives, the older you get.
Market fluctuations and the potential depletion of bank accounts creates fear and uncertainty in the lives of aging individuals. Fixed and growing monthly checks guaranteed for life don’t.
There is no one-size-fits all answer to the question of when to take your Social Security retirement benefits.
But one person I think you should consult before you make a final decision is the person you will be 10 or 20 years from now.