When Should I Take Social Security? [Reader Question]

When Should I take Social Security?
When Should I take Social Security?

Reader Question:

Jorge asks

"If my pension from work is enough to live on and still save some, should I take social security at age 62 or 66? Can’t decide whether taking the a 25% cut on my social security benefits to receive it now or wait till age 66 and get the full benefit".

Answer:

First off. It sounds like you are in a great position. To truly answer your question, I'd need to know your full personal and financial situation. That said, here are some things to consider and a few resources that might help.

If you live to the average life expectancy you should receive roughly the same lifetime benefit regardless of when you elect to take Social Security. Even so, there are a number of factors influence your decision on when to take your Social Security Benefit.

Reasons to wait until full eligibility before taking Social Security

  • You don’t need the benefit to meet lifestyle expenses.
  • Each year you wait (until age 70) the amount of your benefit increases by about 6.2%. Given that you don't need the income, that is a nice return without any market risk.
  • Once you take your benefit it is forever reduced in the future.  Even if you wait, you'll still have the flexibility to turn it on before full retirement if your situation changes.
  • Working while you take early  Social Security benefits may reduce your monthly benefit. Although the reduced amount will be recaptured once you reach your full retirement age your monthly benefit may be less before than. Here is an example
  • You pension income is federally taxable income. Due to this, a portion of your Social Security benefit may be taxable. If your married and filing jointly it works like this (2014)
    • Between $32,000 & $44,000, you may pay tax on up to 50% of your benefits
    • More than $44,000 up to 85% of your benefits may be taxable
    • If something happens to you and you’ve taken an early benefit it may affect your spouse’s benefit if it is based off of your work record
    • You have a higher benefit base to apply cost of living adjustments on. Since 1975 the average adjustment to Social Security Benefits has been 4.03% per year. This can be significant over time.

Reason’s you might take your Social Security benefit early

  • You need the income to meet lifestyle expenses. This doesn't seem to be your situation. Remember, even if you wait, you can always turn it on later .
  • Due to poor health or family history you do not expect to live to your average life expectancy. If this is the case, there is a strong case to take it early, since you may not live long enough to maximize your benefit.
  • You’re truly worried that your promised benefit might be cut or not be there. If you are in your 60s (even your 50s) I do not see this as a significant risk

In my experience, most of the time it makes since, if you can, to wait until full retirement age to take Social Security benefits.

Hope this helps answer your question.

Resources

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