When to take Social Security

On Aug. 14, 1935, President Franklin D. Roosevelt signed the Social Security Act into law to help combat unemployment and guarantee income for retirees. Roosevelt acknowledged the limitations of the act, stating, “We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life,” but according to History.com, he hoped the act would prevent senior citizens from ending up impoverished.

Many Americans now think of retirement as something that automatically happens when they reach 65. However, some may be able to afford to retire sooner, while others may want to work longer. Regardless of when you want to retire, you should carefully consider when you begin receiving Social Security retirement benefits. 

Baby boomers who are eligible for full Social Security benefits at age 66 (those born between 1943 and 1954) can begin claiming reduced Social Security benefits at age 62. People who claim their benefits before reaching full retirement age and subsequently return to the work force will have their benefits reduced by an additional $1 for every $2 more than $18,240 earned in 2020. At age 66, you reach your full retirement age and you may continue to earn any level of income and your benefits will not be reduced.

If you elect to take an early benefit prior to full retirement age, income is reduced by as much as 25%. Although the total numbers of benefit payments would be higher than for those who wait until full retirement age or later, the total lifetime cumulative benefit received may be lower. By postponing benefits until age 70, you could receive up to 8 percent more per year and almost double your monthly benefit income.

In 2020, the maximum Social Security benefit is $3,011 a month at the full retirement age, which varies depending on your birth year. To know if you can afford to retire and wait until 70 to receive increased benefits, you should consider your budget, goals and other financial resources.    

In addition to your timing options, a helpful idea to consider is your Personal Break-Even Point.  If you claim early benefits at age 62, your break-even point is somewhere between age 75 and 76. Meaning that if you live past age 75, you would have been better off waiting until 66 to start taking benefits. If you delay claiming your benefits until age 70, your break-even point will be around age 79. Meaning that if you live past age 79, you will have received more in benefits than if you took them at 66.

There is no textbook right answer on when to take social security benefits.  You must carefully consider your own situation and the pros and cons of each possible path. Avoid making decisions based on arbitrarily set ages or based on what your friends or family decided to do with their benefits.   

Written by Chris Merchant, CFP® for distribution by Hunt Country Wealth Management.

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