Most retirees ponder this question: “When should I start taking my Social Security benefits … at age 62? At full retirement age? Somewhere in between?” The conventional response to this question is “Wait as long as you can.” After all, those whose full retirement age is 66 will face a 25% lifetime reduction by starting at 62. They also have the option of an 8% annual boost for every year they delay benefits, up to age 70. In short, the longer you delay, the greater your benefit for the rest of your life.
However, there are times when a beneficiary should consider tapping that benefit early. Here are four:
1. Poor Health
The break even age — the age when the cumulative benefits of starting early equal the total of the higher benefits one would receive by waiting until full retirement age, is around 78. This means that if you live past 78, you are better served by waiting, but if you don’t live to age 78, you would receive a greater total by starting early. Therefore, if your health indicates that you will not live to age 78, you should consider starting your benefits early. Part of that decision, for married couples, should be the impact on the survivor’s benefit, which is generally 100% of the higher-earning spouse’s benefit.
2. Short on cash
If you simply don’t have enough cash flow to make ends meet, it may be better to start receiving your benefit early than to create debt that will haunt you in coming years. However, if you are continuing to work instead of taking an early retirement, you need to factor in the earnings limit: you forfeit $1 for every $2 earned over $14,160. It generally wouldn’t make sense to begin your benefit early if you will be giving up a chunk of it.
3. You are Single
Maximizing the survivor benefit, (the primary reason many married couples should wait before starting their Social Security) is a non issue for Singles. Therefore, if other factors lean toward starting early, the single person has more reason to do so.
4. You are a lower-earning spouse
If your lifetime earnings are substantially lower than your spouse’s earnings, you should consider starting your pension early while your spouse waits. The logic is to bring some income into the family now, but allow the higher income benefit, which would also be a survivor benefit, to grow. If the higher income is needed as a survivor benefit, you have wisely grown it. If not, that higher benefit will be appreciated by both spouses for years to come.
Many start their Social Security early for the flimsiest of reasons (their neighbor or co-worker or sister said they should). Reality is that there is no “one size fits all” choice. Personal finance is extremely personal, so whatever decision you make about starting your benefit, be sure you clearly understand your Social Security strategy.
Readers: What is your strategy for starting your Social Security? If you are already drawing your SS benefit, did you start before full retirement age or did you wait? Why?