Reasons to Take Social Security Early
Reasons to Take Social Security Early
by David D. Holland
Social Security “optimization” is the process of figuring out the best filing techniques for the most total lifetime benefits. These strategies are completely legal (not “gaming the system,” as some politicians have suggested). Angel and Hady, two members of my staff, are certified National Social Security Advisors, and my firm utilizes specialized software to compare strategies.
There’s no disputing that there are benefits to delaying Social Security to at least your normal retirement age (age 66 for most current retirees). Delaying to age 70, for one or both spouses, can also be very attractive (monthly benefits would be 32% higher than at 66). There is also no disputing that taking Social Security at 62 will result in a permanent 25% reduction of benefits. However, there are legitimate reasons to start benefits early:
# 1 – You lose your job or your health doesn’t permit you to continue to work. If you don’t have another source of income, drawing at 62 makes sense.
# 2 – You work part-time, but don’t make enough to meet your expenses. You can draw Social Security early and not lose any benefits as long as you don’t earn more than $15,720 (for 2015).
#3 – You have income or assets you’ll receive in the future, but can’t get to them yet (a pension, investments that mature, a pending sale of a property or business, an inheritance). If you need income before these funds become available, there’s nothing wrong with drawing Social Security early.
#4 – Your family’s history of life expectancy is very short. If you might not live to 70, consider taking Social Security at 62!
# 5 – The strategies to delay and optimize Social Security only make financial sense if you live to collect enough of the larger payments. Let’s say you get $1,500 a month at 62 vs. $2,000 a month at 66. If you delay benefits until 66, you’ve missed out on $72,000 in payments (48 months x $1,500). At 66, you get an “extra” $500/month above what you would have gotten at 62. Ignoring inflation and taxes, it will take you 144 months, or 12 years, to break even! You would have to live to age 78 to recapture that $72,000 you didn’t take from age 62 to 66. (Of course, from 78 onward, you are “in the money.”)
The bottom line: The choice about when to draw benefits is dependent on your individual situation. Just because the financial software says delaying Social Security is ideal, that doesn’t mean it’s the right strategy for you!
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