Retirement Read Time: 3 min

Social Security: The 64,000 Dollar Question

One of the most common questions people ask about Social Security is when they should start taking benefits.

This is the $64,000 question. Making the right decision for you can have a meaningful impact on your financial income in retirement.

Before considering how personal circumstances and objectives may play into your decision, it may be helpful to preface that discussion with an illustration of how benefits may differ based upon the age at which you commence taking Social Security.

As the accompanying chart reflects, the amount you receive will be based upon the age at which you begin taking benefits.

Monthly Benefit Amounts Based on the Age that Benefits Begin¹

AgeBenefit Amount

62
63
64
65
66
67
68
69
70

$1,050.00
$1,125.00
$1,200.00
$1,300.50
$1,399.50
$1,500.00
$1,620.00
$1,740.00
$1,860.00

*This example assumes a benefit amount of $1,500 at the full retirement age of 67 for those born in 1960 or later.

At first blush, the decision may seem a bit clear-cut: Simply calculate the lifetime value of the early benefit amount versus the lifetime value of the higher benefit, based on some assumed life expectancy.

The calculus is a bit more complicated than that because of the more favorable tax treatment of Social Security income versus IRA withdrawals, spousal benefit coordination opportunities, the consideration of the surviving spouse, and Social Security’s lifetime income guarantee that exists under current law.2

Here are three ideas to think about when making your decision:

  1. Do You Need the Money?
    Retiring before full retirement age may be a personal choice or one that is thrust upon you because of circumstances, such as declining health or job loss. If you need the income that Social Security is scheduled to provide, however reduced, then taking benefits early may be the only choice for you.
  2. Consider the Needs of Your Spouse
    If your spouse expects to depend on your Social Security income, the survivor benefits he or she receives after your death may be reduced substantially if you begin taking benefits early. It’s important to remember that, based on current life expectancy tables, women are likely to live longer than men.
  3. Are You Healthy?
    The primary risk in retirement is running out of money. The odds of living a long life in retirement calls for waiting until you reach full retirement age, so that you receive a full benefit for as long as you live. However, if your current health is poor, then starting earlier may make sense for you.

There are several elements you should evaluate before you start claiming Social Security. By determining your priorities and other income opportunities, you may be able to better decide at what age benefits make the most sense.

1. SSA.gov, 2021
2. Once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account in most circumstances. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

Don’t Be Your Own Worst Enemy

Don’t Be Your Own Worst Enemy

Emotional biases can adversely impact financial decision making. Here’s a few to be mindful of.

Moneywoman: Unleash Your Inner Financial Superhero

Moneywoman: Unleash Your Inner Financial Superhero

The first National Women’s Equality Day was in 1971. Women couldn’t get credit cards in their own name back then. And if a woman became pregnant, she could be legally fired. Thankfully, a lot has changed, but some things haven’t. Women still do not receive equal pay for equal work. The gap is roughly 20%1, and women continue to live longer than men, now by an average of seven years.

Financial Hacks for Millennials: Starting a Business

Financial Hacks for Millennials: Starting a Business

The major challenge “millenipreneurs" face is cash flow issues. Here are tips that can help position themselves for success.

 

Have A Question About This Topic?







Thank you! Oops!

How to Spend Again After Saving

When people save, it brings life rewards. But sometimes after being on your best money behavior for a long time, you want to cut loose and spend. It can happen whether you’ve been saving to buy a home, rejoined the workforce or survived a global pandemic.

Why Medicare Should Be Part of Your Retirement Strategy

How Medicare can address health care needs in your retirement strategy.

Whole Life Insurance Can Be an Asset For Balance

Even if you didn’t grow up on a farm, you’ve heard, “Don’t put all your eggs in one basket.”

View all articles

Contributing to an IRA?

Determine if you are eligible to contribute to a traditional or Roth IRA.

Long-Term-Care Needs

Determine your potential long-term care needs and how long your current assets might last.

Bi-Weekly Payments

This calculator estimates the savings from paying a mortgage bi-weekly instead of monthly.

View all calculators

5 Smart Investing Strategies

There are some smart strategies that may help you pursue your investment objectives

Principles of Preserving Wealth

How federal estate taxes work, plus estate management documents and tactics.

Your Cash Flow Statement

A presentation about managing money: using it, saving it, and even getting credit.

View all presentations

What Can a Million Dollars Buy You?

$1 million in a diversified portfolio could help finance part of your retirement.

Emerging Market Opportunities

What are your options for investing in emerging markets?

When Do You Need a Will?

When do you need a will? The answer is easy: Right Now.

View all videos