The Most Important Decision about Social Security: When?

7.17.17Deciding when to start taking Social Security payments has to be considered in the total picture of retirement planning.

The challenge of retirement planning is that once a big decision is made, you don’t have three or four decades to fix any mistakes. The same holds true for deciding when to take your Social Security payments. Taking it out too early, can have a long term negative impact.

Kiplinger notes, in its June article, “What to Consider Before Filing for Social Security Early,” that some Americans are beginning see the financial benefits of waiting for their full retirement age (between 66 and 67 based on your birth year). But others don’t wait because you can take them as early as 62 with reduced benefits.

Some people want to take their benefits as soon as possible. They’ve been paying into the fund for years and want to get their money back ASAP.  It is also possible that Social Security might go away, and they want to be paid before that happens. Others expected to work until they were 65 or 66, but then they’re “downsized” in their early 60s, making it hard to find another job. They may decide they need the steady income that Social Security offers.

You should understand the options before you file: this includes smaller payments for life, earnings limitations on future job possibilities in your retirement, and a potential income hit on your spouse. Remember that monthly payments will be about 30% percent higher at your full retirement age, than if you file at 62, plus 8% per year after full retirement age (FRA), if you delay until age 70.

An  individual who is laid off at 62 may prematurely take his benefits when he can’t find work. If he does get a job, he’ll have an earnings threshold of $16,920 in 2017, if filing prior to his FRA. This limits how much he can make. If he makes more, Social Security will withhold $1 in benefits for every $2 he makes over that limit! If the husband has been the higher earner in the family and takes his benefits at 62, he’s greatly reducing the amount his wife will receive if she outlives him.

Understanding all Social Security options, and most importantly, how Social Security fits into your overall retirement income plan, is crucial in deciding when to take your benefits. There are income needs like basic expenses and lifestyle. Some use the first few years of retirement to travel, start hobbies and visit the grandkids. This means more spending in the early retirement years than later. Next review your income streams, like a pension, taxable retirement accounts, non-taxable Roth IRAs, and Social Security.

You may want to sit down with an experienced estate planning attorney to understand how Social Security will work as part of your overall estate plan. Does your estate plan include proper trusts and other vehicles for control and distribution of your wealth while you are alive? How will your spouse fare, if you pass first? Retirement income sources should be viewed in the big picture to make the best decisions for you and your spouse.

Reference: Kiplinger (June 2017) “What to Consider Before Filing for Social Security Early”

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