By Peter Schenck
I walked into a client’s office this week and was surprised by the number of co-workers she had who asked about Social Security. It was a hot topic, and the conversation never seems to go away. So when is the best time to take your Social Security benefit? What are some of the major factors to consider prior to that decision?
First, there is no perfect answer to the question of whether you should take the benefit early (age 62), at your full retirement age or waiting until age 70. I have had clients debate me until they were blue in the face on the topic. So let’s take a look at the benefits and potential shortfalls of both decisions.
One major advantage of taking it early is the money! The sooner you start taking your Social Security benefit the earlier you start getting some of your money back from the government. Of course, I hope you’re not working. Or if you are, that you aren’t making more than $15,120 in 2013. The system will take back $1 for every $2 you earn over this limit. Keep in mind, investment income doesn’t count toward that limit. It’s only earned income that counts, and it only applies to income received AFTER you start taking the benefit. For example, if you work a partial year, the income you earned before taking the benefit doesn’t count toward the aforementioned threshold. Your benefit should begin the month after you apply. For a majority of families and individuals, the main factor in determining this early withdrawal is whether they can afford to stop working.
That’s one major decision to make, and there are some other steps to take, like making a budget. Hopefully you are already doing this, but if not, now is a good time to start. Every household is different, so you need to determine, based on your goals, whether you can afford to make the transition to retirement. Track your monthly expenses down to the last penny. If you are helping your kids pay for college, still have a healthy chunk left on the mortgage or aren’t completely comfortable with your retirement assets, then you may not be ready.
Of course, the longer you wait to begin taking Social Security, the bigger your monthly benefit. If you are healthy and still happy at work, perhaps waiting to enjoy a larger income might be for you. In addition, after you reach your full-retirement age you can work as much as you want without affecting the benefit.
Married couples also have to be mindful of their spouse’s benefit. If you pass away and your spouse’s benefit is less than yours, he/she gets to keep your benefit. However, your spouse’s benefit goes away. The longer you wait to collect, the higher the benefit your spouse is entitled to after you pass away. Be mindful of this if you’re not adequately prepared to cover your family in that event. Waiting can have a significant impact on their standard of living.
When determining whether your Social Security benefit along with any other retirement income allows for a comfortable retreat, calculate your projected investment income stream conservatively. You can start with the Social Security Retirement Estimator, which will give you an estimate of your options and current projected benefit. This calculator will work for you now provided you have enough Social Security credits to qualify for benefits and you are not currently receiving benefits. It’s also wise to meet with a professional financial advisor to review your calculations, taking into account all other available income for retirement.
I know everyone has opinions on the matter, but I say, play it safe. If you can keep working and enjoy what you do, keep accruing your Social Security benefit. By delaying your benefit, it will increase 8 percent a year from age 67 to age 70. Finally, begin living within your projected retirement income prior to actually doing so. See if it’s realistic. There is no one-size-fits-all solution.
Peter Schenck is a Financial Advisor with First Command Financial Services. A member of the Financial Planning Association, Peter holds Series 6, 63 and 65 securities licenses plus state life and health insurance licenses. Peter advocates time-tested financial principles, including disciplined, long-term saving and investing, careful debt management, and a thoughtful insurance strategy to manage financial risk.
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