I am approaching a retirement milestone this year. This is the year I turn 59 ½. It’s not the first artificial line I’ve crossed on the journey (55 for getting at my 401k without penalty was the first), but it is a significant one. I will be able to access all of my retirement accounts (other than my HSA, at least as a retirement account) without penalty. While I have no intention of doing so (as you may know, I’m still working – by choice rather than necessity), it did get me to thinking about the lines I have yet to cross. Mostly, I was thinking about social security and what that will look like for me, and most importantly, when I will start taking it.
As most of you probably know, we can start social security as early as age 62, if we are willing to draw less than our full benefit. If we wait until 67 (at least for most folks – it’s actually a few months shy of that for me), you get the full amount you are entitled to. But if you wait longer, your benefit will increase about 8% per year until age 70. (The actual numbers for me, based on the social security administration’s website, were 1/3 less than my full benefit if I take at 62, and 30% more if I wait until 70 – there is specific information on the official website and it should always be your first stop in figuring out questions). So the question for me is do I wait and get my full benefit, do I go early and get what amounts to about 67% of my full benefit, or put it off until I’m 70 for an extra 30% every month. Not an easy question to answer and one that requires some serious consideration and some frank self-evaluation.
There are two big questions to answer before you can decide whether to take social security at 62 or later. First, what is your financial situation at 62? If you are going to retire, do you have enough assets to live the life you want without starting social security yet? If the answer is yes at 62, then look at each successive year. Every year you delay will increase your social security payment. Put it off as long as you reasonably can without jeopardizing your quality of life. If you can wait until 67 (full retirement age for most folks going forward), then engage in the same analysis for the next couple of years. Can you wait until 68? 69? If you make it until 70 your payments will be about 30% more than if you take it at full retirement age. And almost twice what you’d get at 62. The benefits of waiting in extra money, while easily calculated, are not completely dispositive.
Second, and the more difficult issue to contemplate, but one that is crucial to the analysis, is that you will eventually die (ok, that was a little harsh), how about “figuring out what your life expectancy is” (a little better). It is never an easy thing to contemplate your mortality. When we do it all the time, at least generally, to make sure that we will have a retirement nest egg that will last as long as we do, it is still a little bit of a distant concept (for you at least, I’m an Oldster after all). Way in the future. Nothing to worry about today. But if you are 59 ½ or 62, looking at life expectancy is an entirely different imperative. It is absolutely necessary to face that fear in order to determine which direction to take.
Understanding your personal situation, your health, your family history and how many years you likely have left will allow you to make the best decision you can. For example, if you are a 62-year-old woman and every woman in your family has died before the age of 65, then you probably don’t want to wait until 67 to start social security. If you are a 62-year-old male, and most of the men in your family live to be 100+, you will probably do better by waiting until you are 70 to start your benefit. I know that these examples are extreme, but they book end where most of us will find ourselves. The social security administration has a calculator to help you figure your life expectancy here. It is rudimentary, but will give you an average based on gender and age. The Living to 100 website has a much more detailed calculator that will give you an estimated life expectancy based on many data points such as age, where you live, gender, health, and family history (Note – the living to 100 website requires a valid email address for the results). Using these two calculators, or similar ones (there are a bunch out there), is helpful in order to get an idea of how long we can expect to get payments from social security.
So here is a simple method for helping you decide when to take social security:
- Can you live without it starting at 62? If no, sign up, and stop reading this post. If yes, go to next question;
- Visit the social security administration’s website under the “My Social Security” tab and enter your information. It will tell you the payment amounts you can likely expect at age 62, full retirement age (probably 67), and at 70;
- Figure out how many months of life expectancy you have from each starting age. For example if your life expectancy is 80 years, starting at 62 you would have 18 years times 12 months (18×12=216) and multiply your monthly expected payment by the total number of months. Do this for each year up to 70;
- The resulting numbers will be the total amount of social security payments you will receive based on each starting age, assuming you live to your life expectancy; and
- Pick the one that pays you the most over your life.
There you have it folks, a fairly easy, pretty logical method for picking when you start social security. Granted, it is somewhat of a crapshoot. There is no guarantee we’ll make it to our calculated “life expectancy”, or that we won’t exceed it by 20 years. But you have to base your decision on something, and the best possible educated guess is a good place to start.
Until Next Time, FIRE On! – Oldster
Taking Social Security benefit depends on the situation that you are in. It is a highly personalized major decision that you should need to take time thinking about. It is easy to dive into the benefit as it put easy income in your retirement pocket, but the timing has the potential to cost you to lose thousands of dollars if done at the wrong time. One of the possible reasons for taking it earlier is healthcare expenses. To avoid it, plan for your healthcare as early as possible. Develop a contingency plan how you will handle the expenses without relying on Social Security benefits. Consider Medicare, Medigap plans, Medicaid and long term care insurance in the mix. If all options are not possible for you, your retirement saving is critical and there’s no more choice left, then maybe taking the Social Security is the right option for you.
Good points Leandro. We humans have a tendency to make things more complicated than they need to be. While there is no one right answer on the question of when to take social security, by factoring in your expected life span and the issues you raise in your comment, you can make a more educated guess than most folks will.
Thanks for your comment and your visit!
I think the break even point is approx 80 yrs old where taking it early vs waiting till 70 comes out about equal. There are a lot of variables in play so you have to take a hard look at your personal situation. If you don’t have much savings then when to take it becomes more important. But if you do, then I think the differences over time arent as significant. Take it early, get more checks and invest it if you don’t need it. In the big picture if you make it to 80 or 90, a few $100 a month either way will probably be the least of your concerns. You cant predict the future, so just make the best decision you can and go for it.
When I was growing up (in the 1960s), an acquaintance of my father’s used to “brag” that no man in his family had ever reached the age of 70. He was, at least outwardly, in good condition in his late 50s and seemed healthy, happy and otherwise ready to live for at least 20 more years. But genetics caught up with him and he died suddenly before he was 65. He was still working. Just keeled over one day on the job. My point is that, as Leandro pointed out in the first comment, everyone’s situation is different. And, no one is better suited to make a determination about when to start social security than the person in the individual situation. But, when we are thinking about broad populations we can’t take personal circumstance into account. You need a bigger picture tool to apply to help whittle down the variables. Life expectancy calculators are just one of those tools. Something to be used with the common sense of one’s own experience.
Thanks for the comment Arrgo. Come back and visit again.