In
today’s article, we will discuss when to take Social Security. We will start by discussing the options
people have.
There
are three important dates for Social Security:
your early retirement age, your retirement age, and your late retirement
age. Your early retirement age (for
Social Security purposes) is 62. The
longer you delay taking benefits, the more they will grow. Age 70 is your late retirement age, after
which benefits stop growing. In between
these dates is something called your “full retirement age”. Full retirement age depends upon when you
were born, as seen in the table below:
|
Year of Birth
|
Full Retirement Age
|
|
1943 - 1954
|
66
|
|
1955
|
66 years and 2 months
|
|
1956
|
66 years and 4 months
|
|
1957
|
66 years and 6 months
|
|
1958
|
66 years and 8 months
|
|
1959
|
66 years and 10 months
|
|
1960 and later
|
67 years
|
There are unfavorable rules
if you start collecting Social Security before your full retirement age. First,
you are penalized if you choose to continue working or go back to work. In 2019, those that are collecting Social
Security before full retirement age lose $1 of Social Security benefit for
every two dollars earned over $17,640 per year.
It gets a little better in the year of your full retirement, where you
lose $1 of Social Security benefit for every three dollars earned over $46,920,
up to but not counting your birth month.
Some
readers may have heard that Social Security is going bankrupt, and that people
should retire early in order to get their money while it is still
available. That is not exactly true,
although it is running out of money. If
our elected leaders do nothing to change the situation, Social
Security will reduce benefits to 80% of earned benefits starting in 2035. This is still a long time away. As we get closer to that date, more and more
pressure will be applied to Congress to reach a solution. Perhaps I’m naïve, but I believe that
eventually Congress will act. My
recommendation would be not to make a decision on when to take Social Security
based on an event still 15 years away and unlikely to occur.
There
are a lot of complicated rules and formulas for Social Security, but in this
article I will try to keep them simple.
Your basic Social Security benefit amount will depend upon your work
history. The rules are written so that
you have to get at least 40 credits over your lifetime to qualify, you can earn
at most 4 credits per year. The amount
you get depends upon how much “qualified income” you made during your work
record. For 2020, the maximum benefit
possible is $3,790 per month. The
minimum benefit possible is $41 per month but almost nobody gets that
little. $1,500 per month is
typical. Social security is indexed for
inflation, so the benefit goes up as the Consumer Price Index goes up. (Again, the subject of another article.) Benefits are reduced by 6.67% for each
of the three years before full retirement age, and 5% per year after that. So, if you start collecting social security
at age 62, and your full retirement age is 66, your benefit is reduced by 25%,
for the rest of your life. On the other
hand, if you defer taking social security, your benefit grows by 8% for each
year that you wait.
Social
security is essentially a promise by the government to pay you. With other government bonds and bills earning
2% interest or less, getting guaranteed 8% on your money seems like a great
deal. If you are in good health and can
afford to wait, you should definitely hold off on claiming your social security
benefit.
You
can find out what your amount is at full retirement by going to the Social
Security website and registering on their web page at https://www.ssa.gov/myaccount/.
But
back to today’s question: when should I claim
my benefit? The answer is (of course),
it depends.
First,
how desperate are you for the money? If
you are poor and desperate, it might be worth it to take the money now,
especially if it means food on the table and/or a roof over your head. However, if you are in that situation, you
can also look into welfare options instead (the topic of a future article).
Second,
how is your health? Social security is
designed so that, more or less, your benefits are roughly equal in value no
matter which option you choose. As we
said earlier, if you are in good health and expect to live longer than most,
you should delay taking your Social Security.
On the other hand, if you are in poor health or have a chronic or fatal
condition, consider taking it earlier.
The
table shows average life expectancy, based on current age:
|
Current Age (Male)
|
Average Life Expectancy
|
Current Age (Female)
|
Average Life Expectancy
|
|
60
|
23 years
|
60
|
23 years
|
|
65
|
19 years
|
65
|
19 years
|
|
70
|
15.2 years
|
70
|
15.2 years
|
Do you think you will live longer
than average, or less than average?
For most people, it’s better to play it safe and assume you will live
longer than average. Hence it's better to hold off on starting your social security for as long as possible.
Nobody
really knows quite what their life expectancy is, but here are a few websites
that can help. Take their quizzes, and get
feedback on what your life expectancy is and how you can live longer.
In
my case, my wife and I are in good health so far, and not desperate for the
extra income Social Security provides just yet.
We’ll wait.
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