When you reach age 62, you are eligible to begin taking the Social Security benefits that you have paid into throughout your working life. While this is an exciting milestone and you may be eager to start receiving your share, you will be entitled to a greater benefit for each year that you defer taking Social Security between ages 62 and 70. For example, waiting until you’ve reached full retirement age—or 67 if you were born in 1960 or later—will yield a Social Security benefit approximately 30% higher than if you start at 62. And this amount only increases if you wait until age 70, at which point you will receive a benefit that is approximately 32% higher than what you would have received at full retirement age.

Given the increases in your Social Security benefit with each year that you wait past age 62, the key question is whether it’s more advantageous for you to receive the cash flow now, or receive more money each month by waiting. As with many important financial decisions, the answer depends on several variables. Here are a few questions to consider as you determine the right Social Security strategy for you:

    • Do you need the money to cover your living expenses? If you are retired, consider your monthly expenses and how you will fund them without Social Security. For example, if you can adequately support yourself through your savings, pension, and withdrawals from your 401(k) or IRA, it may be best to delay taking your Social Security benefits for as long as possible.
    • Are you still working? The Social Security Administration sets an annual earnings limit for those receiving benefits, and if you earn more than the limit, your benefits will be reduced. In 2020, the earnings limit is $18,240. If you are under full retirement age for the entire year, $1 will be deducted from your Social Security benefit for every $2 that you earn above the annual limit. There is a higher limit once you reach full retirement age: as of 2020, $1 will be deducted from your benefit for every $3 that you earn above $48,600. The bottom line is that if you’re still working, you’ll probably want to delay taking Social Security until your income is lower or you’ve reached age 70.
    • What is your life expectancy? The fear that they will die young and miss out on their benefits motivates many people to start taking Social Security before full retirement age. While it’s impossible, of course, to predict the future, it’s important to be realistic about your probable life expectancy when deciding the right age for starting Social Security. As of 2020, a 65 year-old male is expected to live, on average, 18.2 more years, while a 65 year-old female is expected to live 20.7 more years. This means that most 65 year-olds have many additional years that they will need money—and if Social Security benefits are taken too early, the difference between receiving a lower benefit each month and the full amount available by waiting until age 70 can be substantial. However, it’s also important to consider your own health and family history. If you have a medical condition that is likely to shorten your lifespan, or if family history indicates that you may develop one, it might make sense to begin taking your benefits earlier.

While waiting for as long as possible to take Social Security benefits is the optimal strategy for many people aged 62 and over, it’s important to consider your needs and circumstances before making a decision. Our team of financial experts can help explain this topic further and guide you in determining the right age at which you should begin taking your benefits. Contact us today to schedule a consultation!

–Stephanie Vance, J.D.

(Sources: https://www.ssa.gov/benefits/retirement/planner/whileworking.html, https://www.investopedia.com/articles/financial-advisors/010416/tips-delaying-social-security-benefits.asp).