The decision of when to draw social security benefits can have a lifelong impact on one’s ability to have sufficient enough funds to afford retirement. For too many retirees, an insufficient social security nest egg is all they have.
Waiting to collect social security benefits versus not waiting to collect social security benefits can be a difficult decision make. A number of factors need to be taken into account in order to make an intelligent and well-informed decision.
This article will highlight the impact of various situations on this decision.
US News makes the following case about whether or not it ever makes sense to take social security before the full retirement age:
While you’re eligible to start drawing Social Security at age 62, your monthly benefit is reduced by 25 percent from what you would receive at your full retirement age (66 or 67, depending on when you were born). If you wait until age 70, you can expect your monthly Social Security benefit to be 76 percent more than if you start drawing at 62.
In the article, Leann Sullivan, vice president at TFC Financial Management in Boston, makes this interesting point: “Probably the primary time is when there’s a health issue.”
Someone who can no longer work because of illness or who doesn’t expect to live very long would be smart to draw sooner rather than later, she says.
In addition, here are four situations in which it may make sense to take Social Security early, as US News also noted:
- You can’t live without the money. For those who have no other source of income or not enough money to pay expenses, early Social Security may be necessary to put food on the table. “A lot of times it’s going to make sense for one of the spouses to collect a little bit earlier,” Lucey says. “There’s just a lot of cases where additional cash flow earlier in retirement makes a lot of sense.”
- You don’t expect to live past age 80. According to the Social Security administration, a man turning 65 this year can expect to live to just over 84. For a woman, the expected age is 86 1/2. But people with terminal illnesses or serious health issues may know they won’t live that long, so taking Social Security early makes sense.
- You can’t work but you aren’t eligible for disability benefits. Someone who had a physically demanding job may not be able to do that particular job anymore but isn’t considered disabled because he or she can do other kinds of work. For individuals who are otherwise in good health, seeking a new job at 62 may make sense. Others might be better off drawing Social Security.
- You’re a widow or widower. Widows or widowers can draw from their former spouse’s benefits starting at age 60, and that does not affect their ability to draw their own benefits later. Divorced spouses or minor children may also be eligible for benefits.
This analysis looks at it from a similar but slightly different angle. The following five steps guide you on a methodical approach to evaluating this important decision:
Step #1 – Find Out Where You Stand
You need to know how much your benefits will be and when, exactly, you'll reach what the Social Security Administration (SSA) considers "full retirement age," the age at which you can receive those benefits without penalty. Your benefits are based on your lifetime earnings. If you're over 60 but not yet receiving benefits, you should receive a statement in the mail from the SSA reviewing your potential benefits at different retirement ages.
Step #2 – If you’re out of work or in financial trouble, take the money as soon as you can.
The earliest you can collect benefits is age 62. But you'll pay a penalty of 25% or more in your monthly benefits by filing before full retirement age. You also could lose more if you continue working while collecting a monthly Social Security check. Until the year you reach full retirement age, your benefits will be cut by $1 for every $2 you earn over a certain amount annually. That is why retirement experts generally suggest you wait until you reach full retirement age, or even older, before filing for benefits. But if you're unemployed and out of savings, or if you're only working part-time and finding it impossible to make ends meet, then none of the above is as important as your immediate need. The decision is really a no-brainer. Take the money as soon as you qualify.
Step #3 – If you’re working and in good health, wait at least until full retirement age.
If you're married, and you die before your spouse, he or she can often collect a survivor's benefit based on your earnings. But if you elect to take early benefits, your spouse will receive a reduced check after you're gone.
Step #4 – If you really like your job, wait even longer, but not beyond 70.
One of the oddities of Social Security is that full retirement age isn't the point at which you reach your maximum possible benefits. Keep working and paying into the system, and you can earn even more later.
Step #5 – Apply with Uncle Sam.
Once you've decided the time is right, applying is pretty simple. You can do it over the phone or online. The government says it can take as little as 15 minutes.
In conclusion, besides following the approaches outlined in the two reports above, we highly recommend you engage the services of a financial planner or other suitable professional should you have a desire to learn more about adding social security benefits to your portfolio.