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When Should You Take Social Security?

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The decision of when to take Social Security is highly dependent on your circumstances. You can start taking it as early as age 62 (or earlier if you are a survivor of another Social Security claimant or on disability), wait until you’ve reached full retirement age or even until age 70. While there’s no “correct” claiming age for everybody, the rule of thumb is that if you can afford to wait, delaying Social Security can pay off over a long retirement. Here are some of the rules and guidelines.

What’s full retirement age?

Full retirement age (also known as “normal retirement age”) is when you’re eligible to receive full Social Security benefits. Your full retirement age depends on your birth year: Under current law, if you were born in 1951 or later, your full retirement age is now some point after age 65—all the way up to age 67 for those born after 1959. If you were born before 1951, you’ve already reached age 66 and full retirement age.

Retirement ages for full Social Security benefits 

If you were born in…

Your full retirement age is…

1950 or earlier

You’ve already hit full retirement age

1951-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 or later

67

Source: ssa.gov.

What if I take benefits early?

If you choose to receive your Social Security check up to 36 months before your full retirement age, be aware that your benefit is permanently reduced by five-ninths of 1% for each month.

If you start more than 36 months before your full retirement age, the benefit is further reduced by five-twelfths of 1% per month, for the rest of retirement.

For example, let’s assume that you stop working at age 62. If your full retirement age is 66 and you elect to start benefits at age 62, the reduced benefit calculation is based on 48 months. This means that the reduction for the first 36 months is 20% (five-ninths of 1% times 36) and 5% (five-twelfths of 1% times 12) for the remaining 12 months. Overall, your benefits would be permanently reduced by 25%.

Source: ssa.gov

What if I delay taking my benefits?

If you retire sometime between your full retirement age and age 70, you typically earn a "delayed retirement" credit (DRC). For example, say you were born in 1951 and your full retirement age is 66.  If you started your benefits at age 68, you would receive a credit of 8% per year multiplied by two (the number of years you waited). This makes your benefit 16% higher than the amount you would have received at age 66. (This doesn’t include any potential additional cost of living adjustments for inflation from 66-68).

That higher baseline lasts for the rest of your retirement, and serves as the basis for future increases linked to inflation. While it’s important to consider your personal circumstances—it’s not always possible to wait, particularly if you are in poor health or can’t afford to delay—the benefits of waiting can be significant.

If you decide to wait past age 65, you may still need to sign up for Medicare.  In some circumstances your Medicare coverage may be delayed and cost more if you do not sign up at age 65.

Source: ssa.gov.

To review your situation, your annual Social Security statement will list your projected benefits at age 62, full retirement age, and age 70, assuming you continue to work and earn about the same amount until age 62, full retirement age, or age 70 before retiring. If you need a copy of your annual statement, you can request one from the Social Security Administration (SSA).

How should I decide when to take benefits?

Consider the following factors as you decide when to take Social Security.

Your cash needs: If you’re contemplating early retirement and you have sufficient resources (an investment portfolio, a traditional pension, and other sources of income), you can be flexible about when to take Social Security benefits.  

If you’ll need your Social Security benefits to make ends meet, you may have fewer options. If possible, you may want to consider postponing retirement or work part-time until you reach your full retirement age—or even longer so that you can maximize your benefits.

Your life expectancy and break-even age: Taking Social Security early reduces your benefits, but you’ll also receive monthly checks for a longer period of time. On the other hand, taking Social Security later results in fewer checks during your lifetime, but the credit for waiting means each check will be larger.

At what age will you break even and begin to come out ahead if you delay Social Security? The break-even age depends on the amount of your benefits and the assumptions you use to account for taxes and the opportunity cost of waiting (investment returns you could have made, inflation, etc.). The SSA has several handy calculators you can use to estimate your own benefits.

If you think you’ll beat the average life expectancy, then waiting for a larger monthly check might be a good deal. On the other hand, if you’re in poor health or have reason to believe you won’t beat the average life expectancy, you might decide to take what you can while you can.

While it may be tempting to look only at your break-even point and think about Social Security as a math equation or an investment decision, it’s often better to think about Social Security as a form of insurance.

A quick note about life expectancy: According to the Social Security Administration, average life expectancy for a 65-year-old male is around 84 years and 86.5 for females. Married individuals tend to live even longer, with a greater than average probability of at least one spouse living to age 90. To compute your own life expectancy, use the life expectancy calculator at SSA.gov.

Remember, though, that the average is just that—an average. If you have a shorter life expectancy than average, then early withdrawals might be a better option for you. If you don’t, starting Social Security later can be particularly beneficial if you live longer than average. 

Your spouse: If you are married, you can explore additional strategies to maximize the benefits you receive collectively. Start by taking your spouse’s age, health, and benefits into account, particularly if you’re the higher-earning spouse. The amount of survivor benefits for a lower-earning spouse could depend on the deceased, higher-earning spouse’s benefit—the bigger the higher-earning spouse’s benefit, the bigger the benefit for the surviving spouse.

Whether you’re still working. Earning a wage (or even self-employment income) can reduce your benefit temporarily if you take Social Security early. If you're still working and you haven't reached your full retirement age, $1 in benefits will be deducted for every $2 you earn above the annual limit ($18,240 in 2020).

The reduction falls to $1 in benefits deducted for every $3 you earn above a higher limit ($48,600 in 2020), deducted only for income earned before the month you reach your full retirement age in the year you reach your full retirement age. Starting the month you hit your full retirement age, your benefits are no longer reduced no matter how much you earn.

Again, any reduction in benefits due to the earnings test is only temporary. You receive the money back in the form of a recalculated higher benefit beginning at full retirement age, so don’t use the reduction as the sole reason to cut back on working or worrying about earning too much.

To wait or not to wait?

Consider taking benefits earlier if …

Consider waiting to take benefits if …

You are no longer working and can’t make ends meet without your benefits.

You are still working and make enough to impact the taxability of your benefits. (At least wait until your normal retirement age so benefits aren’t further reduced due to earnings.)

You are in poor health and don’t expect the surviving member of the household to make it to average life expectancy.

You are in good health and expect to exceed average life expectancy.

You are the lower-earning spouse and your higher-earning spouse can wait to file for a higher benefit.

You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.

 

What about taxes on social security?

Keep in mind that Social Security benefits may be taxable, depending on your “combined income.” Your combined income is equal to your adjusted gross income (AGI), plus non-taxable interest payments (e.g., interest payments on tax-exempt municipal bonds), plus half of your Social Security benefit.

As your combined income increases above a certain threshold (from earning a paycheck, for instance), more of your benefit is subject to income tax, up to a maximum of 85%. For help, talk with a CPA or tax professional.

In any case, if you’re still working, you may want to postpone Social Security either until you reach your full retirement age or until your earned income is less than the annual limit. In no situation should you postpone benefits past age 70.

What if I change my mind?

If you receive Social Security benefits at a reduced rate, but then change your mind, you have the option of withdrawing your application and paying back to the government what you've already received (including Medicare payments and taxes deducted). Then, you could restart benefits at a later date to take advantage of a higher payout. But you are limited to one withdrawal per lifetime.

For example, let's say you elected to receive early benefits at age 62, but then decided to go back to work at age 63. You could withdraw your Social Security application within the first 12 months of receiving benefits, pay back the years’ worth of benefits you received, go back to work, and then wait until a later age to restart your benefit checks at a higher level.

For important details about repaying benefits please read the SSA publication If You Change Your Mind.

What is the future of social security?

If you’re skeptical about the future of Social Security or wary of potential changes such as means testing—which could reduce or eliminate benefits for the wealthy, or an increase in the full retirement age—you may be tempted to start benefits early, under the assumption that it’s better to have something than nothing.  The 2019 annual report from the Social Security Trustees projects that the Social Security Trust Fund has enough resources to cover all promised retirement benefits until 2035 without changing the current system.

Over the longer term, changes such as later benefit dates or means testing (a reduction in benefits based on your other income sources) may be considered.

In any situation, if you’re particularly concerned about the future prospects for Social Security, that’s a good reason to save more, and earlier, for your retirement.

The bottom line

If you have a choice and are in good health, think seriously about waiting as long as you can to take your benefits (but no later than age 70). For retirees in good health, a long retirement coupled with uncertainty about markets and inflation are the biggest risks. Delaying Social Security, if you can, is effectively an insurance policy against those challenges.

Your situation may differ, however, and there are many factors to consider. Get help from your financial planner if you need it. 

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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The strategies mentioned here may not be suitable for everyone.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, Financial Planner or Investment Manager.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk including loss of principal.

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