At what age should I take my Social Security?
This is a question that so many retirees ask every day. Most of my clients begin asking this question around the age of 55 or even earlier. And it's something that most Americans wonder about, assuming they have been paid enough during their careers.
How Well Do You Take Care of Yourself?
But this topic triggers a lot of different issues that go beyond finances. It also has to do with diet, health, and exercise. How well you take care of yourself will impact the amount of Social Security that you receive, unless you die unexpectedly. No one can predict the day of their death, but if you’re relatively healthy, you're going to have a long life, assuming you don’t experience a catastrophic accident.
While setting up clients' retirement plans and going through the various "what if" scenarios on what will give them the most comfortable retirement and the highest likelihood that they will not run out of money with their desired budget, we are taking a close look at Social Security.
FREE RETIREMENT VIDEO
But before you read #3, here is a link to our free retirement video that will show you how to avoid running out of money in retirement and potentially increase your retirement income:
Most Recommended Age is 70
I typically recommend that my clients start their Social Security at the age of 70. Why? Because for each year that you wait between the ages of 62 and 70, the government is going to pay you roughly 6% to 8% more per year.
So when you're talking about simply waiting those eight years from age 62 to 70, you could be getting paid 64% more at the age of 70, particularly if you were born before 1954.
Now, as you get a bit older, that number may go down because the full retirement age changes. If you were born after 1960, your full retirement age is 67, and you're going to get an increase of 8% each year that you wait. If you wait until age 70, you're going to get 24% more than if you had taken your Social Security at age 67. For many people these days, the full retirement age is 67, whereas it used to be age 66.
Full Retirement Age Could Get Moved to 68
The baby boomer generation is dying off, and so is its income earning power. If our population continues to live longer, our government's debt increases, and the amount of taxes we pay decreases, then that retirement age of 67 would increase to 68 or 69. I don't think 69 is going to be here anytime soon, but I do think we could see age 68 for those of us that were born in the '70s and especially the '80s. I believe age 68 is a realistic retirement age for Social Security in the future.
Disadvantages To Taking Your Social Security at Age 62
So if you're looking at the scope of your life and thinking about when you want to retire, one thing I recommend to my clients is to stay in good shape and work until age 70. If you can manage this, you’ll get a 64% increase in your Social Security benefit when you retire. One of the downsides to retiring at age 62 is that you get penalized for earning money over a very low threshold. For example, in 2022, that threshold is only $19,000. So if you earn over $19,000, you'll have a deduction of $1 on your Social Security for every $2 you earn over $19,500. However, if you wait until full retirement age in 2022, your Social Security benefit will be reduced by $1 for every $3 that you earn over $52,000. That's a big difference. There are two changes there: the jump from $19,500 to $52,000, and the $1 deduction for every $2 becomes a $1 deduction for every $3 over.
So, unless you were 100% positive that you weren't going to work again, you wouldn't want to take Social Security at age 62. Because if you did decide to work again and you made over $19,500, your Social Security would be reduced. The government uses these tactics to deter us from taking Social Security at age 62 and continuing working.
As I look at my life and what I want to do, my basic plan is to get my youngest child out of high school, stay in good shape, earn an income, and pay into Social Security as I've been doing since I started working. I don't plan to take Social Security until I turn 70 unless something happens where I can or need to stop before then. If I get close to 70 and it is more like 73, then I'll wait until age 73.
My Own Personal Plan On Waiting Until 70
To prepare for age 70, I plan on exercising five days a week in my 50s and 60s.
There's nowhere in the Bible that talks about retirement, so working until age 70 really isn't that long, especially if you're going to live into your 90s.
And being able to enjoy that decade with a higher Social Security payment during retirement will be wonderful. For someone like me, working until age 70 gives me an opportunity to employ one of my children or continue to help other people, not just my clients, and also the kingdom of God and all these other goals that go along with working until age 70.
But most of my clients’ retirement plans would be better if they waited to full retirement age, if not age 70. Let's say they retired at age 63 and drew down their portfolio for seven years. Then they start taking Social Security at age 70. It ensures that they'll be able to make it across the finish line. They will get more cost-of-living adjustments. If you take your Social Security at age 62, there is a 30% reduction today from full retirement age. And I just don't think that's necessary for most of my clients.
Why Would You Want To Take SS At Age 62?
- What are the situations in which someone would want to take Social Security at age 62? Let’s say you need the money immediately, like during a recession. In the financial crises of 2000, 2008, and 2009, we saw close to 40% of eligible women and 36% of eligible men start taking Social Security at age 62.
- Another reason is that you may want the money even if you do not need it. Perhaps you think you can do a better job of investing the money than by leaving it in the government's hands. If this sounds like you, there are a few things to keep in mind: Number one, you will have to invest that money and make more than 6% or 8% per year. That is the guaranteed return that you will get if you wait each year. You will get between a 6% and 8% increase for each year that you wait. And right now, that increase stands at about 54% from age 62 to 70, a guaranteed 54% increase. So if you pull the money out, make sure you're going to be able to put it back in.
- The third thing is that you should not be planning on working and making over $19,500 or your Social Security benefit is going to start getting reduced.
- The fourth reason goes back to what we've talked about. Let’s say you are in poor health or have a degenerative disease. There are many different types of health situations that you may find yourself in where you aren't expected to make it another 10 years. Then maybe you can start taking Social Security at the age of 62. But hopefully that's not the case with you.
Summary About Why I Want to Wait
I want to maintain an attitude where I'm committed to my health and committed to working until age 70. My prayer for myself is that I do not become lazy with my health or my work ethic between now and age 70. I'm 47, so I've got 23 years left until I cross the career finish line, if you will. And then I'll move on to do other types of work. But I think the best overall strategy is to plan on working and staying in good health until 70, and then trigger Social Security at that point, because you don't have to worry about being penalized for working before full retirement age or at age 70, and you’ll get 54% more income than you would get at age 62. And 54% over an eight-year period is a much bigger increase than what we would see with inflation. So you're increasing your purchasing power against inflation, even in real return dollars.
Set Up A No Cost 20 Minute Retirement Ready Success Call
If you have any questions about when you should start Social Security, please click on the following link and schedule a no-cost, no-obligation 20-minute call with me. I'll go over where you are now and where you want to be, and I'll share with you some tips that I use with my clients to help them determine when they should take Social Security. Click here: https://calendly.com/thomascloud/retirement-ready-success-call