When Should I Start Taking Social Security?

By Kevin Reardon CFP®

We are asked this question more than any other.  Like most things in life, there is no perfect answer. However, there are guidelines and considerations in making this decision.  First, let’s review the basics.

Social Security Basics

The earliest that a Social Security benefit can be started is age 62, with the latest being age 70.  (Note:  There is a benefit for unmarried widows that allows them to start a widow benefit at age 60.) For every year you delay taking the benefit, your benefit increases 5-8%. For a married couple, each spouse applies for benefits based on their own earnings history.  There is a spousal benefit that ensures you receive either 100% of your own benefit OR approximately 50% of your spouse’s benefit, whichever is higher.  When one spouse passes away, the smaller of the two benefits stop, and the larger benefit continues.

The earlier you start the benefit, the smaller your benefit will be but the sooner you get paid.  The longer you delay the benefit, the bigger your benefit will be; but the longer you must wait to receive your benefit.  There is a ‘cross-over’ point where delaying your benefit eventually surpasses the advantages of starting your benefit early.

Key Considerations:

Single or Married:

If you are single, your decision won’t impact other people. As a result, any ‘mistake’ in beginning the benefit is suffered by only one person.  If you are married, you need to consider and coordinate your spouse’s benefit, life expectancy, tax situation, and lifestyle before deciding when to begin.

Life Expectancy:

If you have major health issues and a shorter than average life expectancy, it might make sense to start your benefit early. This way you can get paid for as many years as possible before you pass away.  However, if the sickly spouse has a larger benefit than the healthy spouse, it may make sense to postpone this benefit knowing the healthy spouse will ‘inherit’ the larger of the two benefits when the one spouse dies and keep the larger benefit for an extended period.

Spouses’ Ages:

In situations where there is a large age gap between spouses, and the older spouse has the larger of the two projected benefits, it may make sense to delay the older spouses’ benefit. The larger delayed benefit may continue for a very long time when that benefit passes to a much younger spouse.  There is no rule of thumb on this issue. However, if there is more than a 10-year age gap between spouses, delaying the benefit for the higher income spouse likely maximizes the lifetime benefits for both spouses.

Tax Planning:

When to start your Social Security benefit can be significantly impacted by tax planning strategies meant to maximize other aspects of your financial plan.  During low-income years (early retirement) it may make sense to realize long-term capital gains or facilitate Roth Conversions when you are in a low tax bracket.  Starting Social Security benefits early would add income to your tax situation and possibly negate the benefits of the other tax strategies.

Lifestyle:

The sooner you start the benefit, the more money you will have in your pocket to spend.  Many people prefer to begin their benefit as soon as possible so they have extra cash now to pursue their immediate goals and dreams.  By doing so, people are foregoing the security of a larger check later in Iife in exchange for the benefit of extra spending money today.  This is like the fable of the Ant and the Grasshopper, but although there are many instances where the ‘live for today’ mantra of the grasshopper can actually make sense.

Longevity Insurance: 

The longer you delay taking the benefit, the larger your benefit will be later in life.  This provides protection in the event you live well past mortality.  If so, you will have a larger Social Security benefit to pay the bills well into your 80’s and 90’s.

Beware of the Calculators:

There are many Social Security Calculators that will help answer what age you will have received the largest total benefit, relative to when you begin.  These calculators are flawed because they do not account for tax planning scenarios, adjust for other assets you may have available to spend, or account for your other financial planning goals.

The best way to analyze the dilemma of when to begin your Social Security benefit is in context to your entire financial plan.  If you would like help reviewing this decision, give us a call.