When to take Social Security benefits

when to retire

Once upon a time — our parents’ time — Social Security was automatic: You reached age 65 and started collecting your monthly check. Today, dealing with Social Security involves making important decisions that will impact your income for the rest of your life.

The most important choice you will make is when to take Social Security. If you have worked the requisite number of quarters (40) and paid into the system, you are eligible to start taking early Social Security benefits at age 62. Let me say at the start: This is the absolute worst and most costly choice you can make, unless you are suffering from a terminal illness.

Nonetheless, 57 percent of today’s Social Security recipients chose to start their benefits early — before the gradually increasing full retirement age (FRA), currently between 66 and 67 years, depending on your birth year.

There are three big reasons to wait until your full retirement age:

—Taking a Social Security check early costs you roughly 8% a year in benefits for every year you start before FRA — far more than you can earn in a bank today. (And waiting past FRA to age 70, will increase your benefits by roughly 8% for every year you delay.)

—Taking your benefits early permanently reduces your income base, upon which future percentage cost-of-living increases are based. And, for most people, Social Security is the only inflation-adjusted income you will have in retirement.

—Taking Social Security early will penalize your earnings if you continue to work. For 2021, your Social Security check will be reduced by $1 for every $2 you earn above $18,960. If you will each full retirement age this year, the reduction is $1 from your benefits for each $3 you earn above $50,520 until the month you reach full retirement age.

No Excuses

So why do people continue to take benefits early? Mostly they justify it for all the wrong reasons.

Some people figure they won’t live long enough to get the higher benefits promised if they wait. But longevity is increasing. If you are a 65-year-old woman today, the actuarial tables say you are likely to live another 21 years. Men have a slightly lower life expectancy.

But we all think we’re above average! So check your own personal life expectancy at www.Livingto100.com. This online calculator will factor in your personal health and familial statistics, and give you a quick estimate. You might be surprised at your likely longevity!

Another emotional reason for taking Social Security early is a fear that the government won’t pay in the future. But we’ve all seen that government can — and will — create as much money as necessary to satisfy the largest constituency.

Some people just equate taking Social Security with retirement. But retiring from your job doesn’t mean you must start benefits. In fact, you would likely be better off using some of your savings (currently earning less than 1% in the bank) and waiting to take Social Security.

Social Security Complexities

Larry Kotlikoff, author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” says he thinks at least half, or maybe 70% of people are making major mistakes in claiming benefits. And he points out that there are nearly 2,720 rules in the Social Security handbook — and “literally hundreds of thousands of rules about those basic rules.”

If you’re divorced, widowed, remarried, or a couple trying to maximize each other’s benefits, it can get complicated. And the employees of Social Security are not always trained to deal with these issues. At Kotlikoff’s website, MaximizeMySocialSecurity.com, you can access his claiming software for $40.

Or you can seek out experts to help you with this decision. Not all financial advisers have expertise. So go to NARSSA.org, the website of the National Association of Registered Social Security Analysts, to find an expert.

Check my latest podcast at FriendsTalkMoney.org, for our discussion of this Social Security timing issue and resources for help.

It’s worth paying for advice, because the Social Security decisions you make now, will hugely impact your entire future. And that’s The Savage Truth.