When to take Social Security
Approximately 10,000 people turn 65 every day. For most people, Social Security will represent a substantial portion of their retirement income.
Your decisions with Social Security matter. Deciding how and when to claim Social Security is one of the most important financial decisions a person will make in his or her lifetime. Seemingly small decisions can very quickly add up to tens of thousands of dollars and will impact you for the rest of your life. I’ll show you why.
Understanding benefit ranges
Let’s look at some stats from the Social Security Administration using the maximum benefit in 2021:
- at age 62, the biggest possible check would be $2,324.
- At full retirement age, your maximum benefit would be $3,148 a month.
- However, if you wait until age 70, your maximum benefit would be $3,895.
Similarly, a 61 year old person with average earnings of $35,000 would have benefits roughly equal to $1,000 at 62, $1,500 at full retirement age, and $2,000 at age 70.
Spouses get the better of their benefit or 50% of their spouses’ benefit at full retirement age. However, there is an additional penalty for taking benefits early.
Using the examples above, you can see a range of outcomes where two people could get as much as nearly $8,000 per month (rare) to less than $1,500 per month (more common than it should be).
I show you this range to illustrate how much your decision matters. Most people will be somewhere in the middle.
Two people who each earned $35,000 per year waiting until age 70 could receive about $4,000 per month.
You should try to get the most you can. It is extremely rare that it makes sense to take Social Security before age 67. Waiting until 67 should be your base plan. In the vast majority of circumstances, you will be best served waiting until age 70. Waiting until age 70 should be your goal.
While waiting until 70 makes sense, you should not wait beyond 70 and a half. Beyond 70.5 you get no benefit and lose money that should have been yours.
Considerations for a more detailed analysis
If any of the following apply, you should do a deep dive and analysis:
- A diagnosed terminal illness
- Significant age gap between spouses
- Significant earnings gap between spouses
- Second marriages
- You plan to take benefits before age 67
What about political and health risks?
People are living longer. Unless you have been diagnosed with a terminal illness, you are likely to underestimate your life expectancy. As for political uncertainty, you can set that aside. Baby boomers vote, and they are unlikely to vote to reduce their own benefits.
How to learn more
Your retirement benefits are not something you should guess about. But there are many great books, websites and calculators that will help you make sense of Social Security. Advice and a detailed analysis from a professional will typically cost between $100 and $500. The most common package is $299.
In addition to working with professional advisors who have masterful understanding, it is 100 percent worth spending a minimum of 20 hours learning the system. Regardless of your net worth, those could be the highest paid and most financially impactful 20 hours of your life.
Ways to stretch your Social Security
1. Cut your housing expenses. Moving to a less costly home can boost your cash flow and make it easier to survive on Social Security.
2. Consider moving. If you live in a metro area with steep housing costs, it could make sense to move to a cheaper housing market. Some adventurous seniors go an extra step by moving to Mexico, Costa Rica or another place where their Social Security checks stretch farther.
3. Take a look at other expenses. Do you need two cars now that you’re retired? Can you still afford expensive hobbies like boating or golf? If you’re making ends meet on just your Social Security check, you’ll need to make some tough decisions. And be sure to pay down credit cards and other high-interest debt before retiring.
Far too many people opt for the “take as much as I can as early as I can” approach. That simple mindset is often wrong, and expensive.
How may I help you?