Social Security

When Should You Take Social Security?

dogs guiding each other on their future
A frequently asked question in planning for retirement income is, “when should I/we take social security income?”
A frequently asked question in planning for retirement income is, “when should I/we take social security income?”
dogs guiding each other on their future

Deciding when to take Social Security is a balancing act

According to the Social Security Administration, 70% elect to trigger this benefit at age 62 when it first becomes available, locking in a 25% lower income for the rest of their lives.

Of course, some people need Social Security income at a younger age to cover expenses. They should take benefits early. But most can wait a few years to qualify for a higher benefit.

Understanding the consequence of a wrong decision becomes more important as life expectancy increases. Taking income benefits early, and locking in lower lifetime income, can cause longevity risk. Longevity risk is defined as outliving your money. Running out of money in retirement and concerns about health care is top of mind for most retirees

According to AARP, when a couple reaches age sixty-five (65), only 20% can maintain their living standard. This means that 80% of retirees will have to make concessions in meeting their retirement expenses

The worst-case scenario in retirees’ minds is that they become dependent on others, including children, family, or government entitlements. People facing this possibility would be better prepared if they had a financial plan.

Another negative consequence in triggering early benefits is the impact of Social Security income to a surviving spouse? 

For example, Spouse A is a high-income earner. Spouse B did not work much and is entitled to the 50% spousal share. When one spouse dies, the survivor is entitled to the higher of the two benefits, but not both. If the higher-income spouse takes benefits early and then dies prematurely, the surviving spouse’s income is locked at the lower amount for the balance of the survivor’s life. This is not what couples intend to occur, especially after the loss of a spouse.

The other option to take Social Security income benefits until a later age may not be advantageous for others. But how can this be true if you delay results in an eight percent (8%) increase in benefits each year? Some of the reasons have to do with the availability of other income, taxation, health, and life expectancy. 

For example, for retirees who hold most of their investments in retirement accounts, drawing too early from these accounts and deferring social security can result in a weaker financial condition. This is because retirement accounts are taxed and the loss of tax deferral on money taken from these accounts early. Another example is a retiree who has pension benefits that grow at a rate greater than Social Security benefits. In this case, taking Social Security benefits early can improve a financial plan. 

It’s surprising how often rules-of-thumb can weaken a financial plan. What should matter is what is best for you and your circumstances? And how can you get help to avoid mistakes in your planning?

At Cornerstone, our comprehensive financial planning approach will help you make sound financial choices. We will review your Social Security benefits, the merits of each option, and help you understand which is best suited for you. We have seen the difference in options result in several hundreds of thousands of dollars of difference over a plan’s life.

Cornerstone can show you which Social Security options are right for you.

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