When Should I Take My Social Security?
You were probably hoping to click on this article and finally get a straight and simple answer...And looking to your friends and relatives, you think you know the answer already. Over 80% of the people eligible to start taking Social Security file their claim before their Full Retirement Age (which is most commonly age 67).1 So, follow the herd - right?
Not so fast. Although this may be the popular trend, Social Security claiming strategies are much more complex than asking for your neighbor’s advice.
Here are just some of the factors that could come into play with how to maximize not just your benefits, but your entire retirement:
Pension Income—This may reduce or even eliminate yours or your spouses’ benefits, but perhaps not for all years? Are your benefits subject to the Windfall Elimination Provision and/or Government Pension Offset?
Life Expectancy—Many people take Social Security early thinking they will die. It is important to take the emotion out of this decision and look at the comparative facts—what is the break-even age after all considerations?
Taxes—Yes. Social Security benefits are often taxed. In fact, up 80% of your benefit can be taxed, and it doesn’t take a lot of income to hit this ($44,000 in 2022 if you are married).
Increased Costs—Your overall income dictates many things and not just taxes. Your Medicare Premium(s) could go up, the amount of deductible medical expenses, charitable gifts, etc. could go down.
More Taxes—If you take Social Security early, Uncle Sam ups his game again. If you continue to work and earn over a certain amount ($19,560 in 2022), then Uncle Sam will take $1 for every $2 of benefits over the earnings limit.
Roth Conversions—Taking Social Security early may limit your ability and/or the affordability to lower your long-term tax picture by converting IRA dollars to Roth IRA dollars. By the way…this could very well be one of the most important planning items you address in the next few years.
Death—We don’t want to think about it, but there is always the “what if.” Filing early may penalize a widow or widower you leave behind by reducing their income forever. Remember, they will lose one Social Security check regardless. They may need the maximum amount from the only one left.
Divorced or Widowed—Don’t forget that you may have benefits available from a previous spouse. You could also lose access to these benefits if you are not careful.
Switching Benefits—Depending on the year you were born, the year your spouse was born, and your benefit levels; it may be worth your while to start with your own benefit and switch to a spouse’s benefit….and it may not.
Is 8% a good return? —By most people’s standards the answer is Yes! This is the credit you get added to your benefit amount each year you wait up to age 70. Another way to think about this is that 8% is also the penalty you take for each year you take your benefit early.
The bottom line is you shouldn’t simply look at your Social Security benefits and “feel” right about when you take them. This may be one of the biggest financial decisions of your life, affecting the rest of your life. My recommendation is to treat it as such and get professional help today.
What is your Full Retirement Age? Click here to find out: https://www.kiplinger.com/retirement/social-security/603439/whats-my-social-security-full-retirement-age