When to Take Social Security Benefits

Your golden years should be an era of leisure and adventure, of self-discovery and reinvention. For most, maximizing our retirement experiences means maximizing our retirement income. When and how to tap your Social Security benefits is a key component of that strategy.

There’s the rub.

If there were a single best strategy, it would be obvious and simple and there wouldn’t be a cottage industry built up around advising prospective retirees when to pull the trigger.

Instead, the Social Security Administration oversees a system so complicated it requires consumers to be equal parts actuarial, investment counselor, physician, and soothsayer.

How long are you likely to live? How well is your health going to hold up? If you put off retirement, will you feel up to pursuing your passions five years after you clock out for the last time? How about 10?

Then there’s the elephant in the room: With the entire system skating on the thin ice of insolvency, how long will Social Security be able to pay the benefits Americans have earned? (Long enough: Retirees vote.)

Any way you look at it, it’s a roll of the dice.

Full Retirement Age

At the moment — we’re watching, Congress — full retirement age falls somewhere between birthdays Nos. 66 and 67. The later you were born, the later you trigger full retirement age (FRA).

Understand, FRA is not the moment your benefit tops out; instead, it is the age at which the Social Security Administration no longer zealously claws back a portion of your benefits for every dollar you earn working.

Why anyone would continue to work and tap Social Security is an enduring mystery. Why would you reduce your monthly benefit at and simultaneously have some significant portion — up to $1 of every $2 claimed above $17,640 — taken back?

After FRA, Social Security relaxes its grip, but still reclaims $1 for every $3 you earn above $46,920. Ouch.

Nonetheless, SSA reports fully 57% of us start drawing benefits before we reach full retirement age. Surely not all those beneficiaries have abandoned the work force.

By far the most popular age to begin claiming payments: at 34.3% — more than one-third — is 62. Well, of course it is. We’re talking baby boomers here, who practically invented instant gratification.

We know the argument, and it’s not a terrible one: If you retire as soon as you’re able to claim a Social Security benefit, at 62, you’re more likely to revel in your first decade of leisure studies. But will you have enough money? Will your gamble pay off? Or will you rue the day?

After all, benefits increase at roughly 8% year over year. Retire at 62, and your monthly benefit will be as much as 40% smaller than if you waited until FRA. Postpone cashing in until you’re 70 boosts your monthly benefit by nearly 75%.

Every senior who doesn’t need the maximum amount from Social Security income, raise their hands. We see you, Warren Buffet.

The rest of us, maybe we could use an extra $300-to-$1,000 a month. (Bear in mind: Cost-of-living increases are based on a percentage of your monthly payout; the higher your monthly check, the higher your adjustment.)

But do we love working enough to log another four, five, maybe even eight years?

Then there’s that retirement nest egg to consider. The earlier you retire, the sooner you’re likely to have to tap your savings to meet expenses. Got a crystal ball? How are your investments going to perform? (You DO have investments, don’t you?)

Where should you live? Should you move to one of those Top 10 Retirement Cities to stretch your fixed-income dollars, or stick around where you’ve spent the last 30 years? While we’re at it, should you downsize? Or will the kids flip out if you sell the family homestead?

How Long Should Social Security Last?

Listen. Let’s not even talk about what the world is going to look like in five years, or a dozen, or beyond. SSA maintains a handy periodic life table to project your estimated remaining life span. Men who make it to 65, on average, live to be 84; women, to 86. That’s a whole lotta livin’ left to do.

Obviously, this fortune-telling business can get out of hand real fast. Even if everyone on your family tree survived into their 90s, there’s always the proverbial bus with your name on it.

We know and respect seniors who choose to go all-in early, reasoning they’ll have claimed several tens of thousands in benefits before those who waited cash in get that first Social Security dollar. They’ve shown us their break-even tables.

Color us unconvinced. We don’t care where the break-even line is — a dozen years or more — once we’re past it, the difference expands with breathtaking swiftness. As long as we’re playing long-range forecaster, those reliable extra hundreds every month will come along when they’re most needed.

Something else important to consider is whether you have significantly out-earned your spouse. If so, your spousal benefit may be quite larger than the benefit your spouse has earned. The longer you wait to claim your payout, the larger your spouse benefit.

The Bottom Line

We vote wait.

There are, naturally, certain special exceptions. You’re 62 and you have young children who are eligible for benefits when you claim yours. You’ve been laid off and you can’t find work.  You’re in poor health. You don’t love your job, and/or it’s physically taxing.

Suppose, however, you’re played your working-years strategy well. You’ve worked steadily since your early 20s. You’ve fed your 401(k) and/or your IRA. Maybe you’ve even earned a bit of a pension. And not only do you still sort of like your job and coworkers, your employment doesn’t require significant physical stamina to get through the day.

Now you’ve reached FRA and then some, and you’re planning to work another couple of years. Suppose you don’t need the money, and don’t even want the money to boost your standard of living.

Should you exercise your benefits, stashing them, untouched, straight into your investment accounts? Suppose it means you’ll be able to max out your 401(k) plus your and your spouse’s IRAs? Suppose it means being able to maintain an aggressive investment strategy for several more years?

Because that describes our situation precisely, we’ve asked ourselves exactly that question. Also our retirement counselor at work, and our investment strategist. We got a lot of, “Well, it depends.” It turns out life is full of gray areas. Who knew?

Ultimately, at 66 and change — well past our FRA — we’ve decided to wait. Tempting as it is to grab the money to further fatten our nest egg, we have to ask: What’s the likelihood our investments will swell by 8% annually for the next 24 to 36 months? Left untapped, that’s exactly the swelling we can anticipate in our monthly payout.

Meanwhile, even under our invest-it-all strategy, the amount that can’t be shielded in tax-deferred accounts will become part of our taxable income. Meaning? Our investments will have to outperform 8% simply to break even.

And there’s the SSA clawback factor. No, thanks.

That retirement gamble is a bit too rich for our blood.

It’s not fun — few prudent decisions are — but, unless you are a rare, special case, waiting to claim your Social Security benefits is the best possible course of action.