This article was originally published June 5, 2018
Deciding when to begin the disbursement of social security benefits can be one of the more important choices to make when it comes to retirement planning. There are several nuanced advantages and hindrances involved in each decision about the age at which someone initiates social security withdrawals. The earlier the payments start, the lower the monthly amount, but because the benefits last until death, a lower amount that begins years earlier may not be a bad thing for several individuals.
A good practice for managing such an impactful decision takes three main factors in consideration: cash flow needs, health and life expectancy, and whether or not the person is still working for wages. If there is any anticipation of experiencing a more restrictive cash flow after retiring, especially at the onset, taking the benefits earlier may make sense, especially if there is deliberation occurring around the possibility of taking out a loan, or tapping into retirement funds designated for later dates. If cash flow is sufficient to live comfortably post-career without the additional income, then waiting for the unreduced amount at full retirement age, or the boosted amount at age 70, could be more sagacious.
Health and longevity play a crucial role when someone is making up their mind on when to withdraw social security. Many industry professionals have written about what age many people “break-even” on their lengthy investment to the federal program, and the morbid conclusion is that it all depends on when you die. Waiting until 70 to take the payments seems smart because of the annual 8% increase, but if that person dies at 71 after taking only 12 checks, the difference in income than if he or she began at 62 can be significant. A $1,406 monthly benefit (2016 average) at 62 would equate to over $165,000 received by age 71 ($16,872 x 10 years). However, if the person in our example starts at 70 to get approximately $2,320 a month, and passes away after 12 months, the dollar figure they’ve received overall would be $27,840. The difference here is approximately $140,000, which accentuates the importance of health and life expectancy when reaching a verdict on when to take this benefit. If the person in this illustration lives to 85 or older, though, then waiting until 70 may make sense. Either way, careful consideration of all options is an advantageous strategy.
Deciding to continue working or not after the age of 62, but before full retirement age, can cause a reduction in benefit amount through the earnings test, or cause adverse tax conditions, depending on how much you earn. After reaching full retirement age, a social security recipient can work for wages and draw their full disbursement. Other facets to consider when it comes to taking social security revolve around marital status, and for federal employees specifically, either the special retirement supplement or the windfall elimination provision.
–Until Next Time,
*Written by Benjamin Derge, Administrative Associate. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not offer tax or legal services. You should discuss tax or legal matters with the appropriate professional. Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Serving Those Who Serve is not a registered broker/dealer and is independent of Raymond James Financial Services.
When to Withdraw Social Security