Broker Check


When Do I Take Social Security?

| July 03, 2018

This is a question on everyone’s mind as they approach 62 years of age. According to the Social Security Administration, 56% of men and 62% of women took their Social Security before Full Retirement Age, which was 66, in 2016. That is a massive percentage of the Baby Boomers, and if other statistics such as marriage, work and longevity for the Boomer is correct, most of these early takers will lose out in the long run.

Perhaps they all felt a little like Jerry McGuire when he said, Show me the money. Many are worried if they don’t take it right away, they will never see it. Perhaps in part because they fear the government will take it away or they fear an early death. Either way, there is much more that needs to be considered before you take that first check. Here are three:

#1 Your spouse….Most married couples I know only grow to love each other more over the years, not less. They want nothing more than to take care of one another and make sure that if something happens to either one of them, the other does not have to worry financially. Well, taking your Social Security at 62 may put one of you in a nine-line bind. For example, we have seen it fairly often that the homemaker wants to take her benefits before Full Retirement Age since they have a smaller amount anyway, aren’t working and may give the family the ability to do those “extra things.” The drawback occurs if the spouse dies before the homemaker- at any age. Normally, the homemaker would be able to start taking their spouse’s benefit at death, but not in this case. The homemaker would receive their spouse’s benefit reduced by eight percent for every twelve months she/he originally took her/his benefit.

#2 Uncle Sam…You may already know that if you take Social Security early and are still working, you will be penalized up to fifty percent on every dollar you receive. This is in addition to being taxed up to eighty percent on these dollars as well. Just imagine receiving only 10% of your benefit. Yup! That’s what could happen. Plus, you just lost the eight percent accrual of your benefit for every twelve months you postpone taking Social Security.

#3 Longevity….Remember the two fears we discussed up front—the fear of the government pulling away benefits and the fear of an early death? Let’s address these. First, it would be political suicide for either side of the aisle to take away benefits for those nearing retirement. In fact, we don’t expect to see huge changes in the near future at all. Instead, we just expect they will gain the ability to tax more away from you. So…weigh your odds: Potentially hurting your spouse vs. being taxed more in the future, or receiving only 10% of your benefit vs. being taxed more in the future. We have yet to run an analysis with tax increases where the latter makes sense. This is not to say it wouldn’t in a very unique situation; however, it doesn’t justify over half the population filing early.

Second, remember that every year you wait take your benefit, you get an eight percent bump in your pay. This adds up quick. So really think about how long you could live. Medicine and technology are worlds apart from our parents’ generations, which means there is a very good chance you will outlive them by a number of years. And it doesn’t take long for that eight percent bump to catch an early filer. In other words, have someone help you with an analysis. What age will your break-even point be? For some, it is as low as in your late 70s. For others, it is in your 80s. We have software we use to help clients. We plug in all the variables—taxes, investment return, ages, and benefits. It calculates every variation someone could take their Social Security—both strategy and age. This is great because it helps you see what would be gained or lost with what you are considering.

Bottom Line? Don’t take Social Security on a whim or an assumption. Make sure you know your facts for the sake of your pocketbook, your tax return and your family.