Being a financial advisor, one of the most common questions we get asked is, “when is the best time to take social security income” this is a very loaded question. In my opinion, there is not a clear-cut right or wrong answer. There are some variables to consider like life expectancy and how long you plan on working. Life expectancy is something that is unpredictable. All we can do is make the best-educated guess with all the information we have. There are 3 factors that I want you to consider before taking your social security income before your full retirement age. Your full retirement age depends on what year you were born in. This can be found on the social security administration website (ssa.gov).
The IRS has been able to determine what they consider a wealthy retiree based on income. For a married couple filing their taxes jointly up to ½ of their Social Security income is taxable if your income is between $32,000 – $44,000 per year. Up to 85% of your social security income is taxable if your income if over the $44,000 threshold. Now think about this, we have paid into social security with every paycheck we earned with after taxed dollars. So, we are being taxed on a benefit that we have funded with after tax if your income is considered by the IRS as being high.
I have spoken to several people that want to take their benefit as soon as they can. This is your choice and you can take it whenever you prefer but you need to consider a couple things first. Let’s use the full retirement age of 66 that’s you if you were born between 1943 and 1954. If you want to take your social security at 62 your social security income will only be 75% of your full benefit and will only increase if there is a cost of living adjustment. If you wait until age 65 you will receive around 93% of your benefit. Another thing to consider is if you are going to continue working. If you want to take your benefit and still work you can be penalized for making too much money. From age 62 to the year you reach full retirement age for every $2 you make over $17,040 your social security benefit will be reduced by $1. The year that you reach full retirement age up to your birth month, for every $3 you earn your benefit will be reduced by $1. If you plan on working until your full retirement age I would encourage you to wait until then to start your benefit.
When answering this question there are a few things you should know. Your spouse can receive up to 50% of your benefit even if they do not qualify for it on their own. If they do qualify for their own benefit they will get whichever is higher between the two options, half of yours or their full benefit. If you pass away your spouse will keep whichever benefit is higher between your benefit and theirs. Remember how your benefit will be reduced if you take it early? That decision will also change what your spouse is able to receive.
As you can see deciding when to take your social security benefit is not as cut and dry as you might think. I encourage everyone to do the necessary research and planning before making this decision.