It seems I’ve had more folks than normal tell me they’re thinking about taking Social Security early. They have a myriad of reasons but of course they want to know what I think.
There are some valid reasons to consider taking it early. Given that many don’t realize taking it early puts you in the penalty ‘period’ and waiting allows you to be in the ‘bonus’ period.
Although break-even varies for each of us, having some examples may help.
Take a look at this recent Motley Fool article, Delaying Social Security? Here’s How Long It Could Take You to Break Even. You’ll see some good examples.
Why is knowing the break-even age important when it comes to deciding when to start taking your Social Security?
First, here is why it is important to the claimant alone. Wade Pfau, the well-known retirement expert (at least in my industry circles) shares with us, if a male makes it to age 65, their life expectancy is 86 years old. If a woman makes it to age 65, her life expectancy is age 89. If a married couple makes it to age 65, there is a 50 percent chance that one of them will live until age 95. This is not life expectancy from birth. This is if they make it to age 65.
Here’s an example of the cost to that person if their full retirement age is age 67 and they take their benefit in age 62. Their full retirement benefit was $2,000 per month. Their reduced benefit at age 62 (penalty period) is $1,400 per month. If they live until age 86 and are male, taking the benefit early cost them $43,200. That is $7,200 per year past the break-even age.
It is way worse if you would have deferred until age 70. Your Social Security benefit would have increased (think bonus period) to $2,480 per month (plus potential COLAs). The lost benefit would now be $77,600. All of this gets worse the longer you live.
For a woman, there is more loss. Using full retirement age 67, if a woman lives to age 89, she loses $64,800 taking the benefit at age 62. If she would have deferred until age 70, she loses $116,640 if she lives to age 89. That is a lot of money.
If you are married, you should consider deferring until age 70 to increase the benefit to the surviving spouse, especially if your income is significantly more than your spouse.
Finally, you should consider deferring until full retirement age (bonus period starts) regardless of whether you live to the break-even age or not if the goal is to maximize retirement income.
Before you ever make a decision about Social Security it’s imperative that we run a report for you comparing your options. When you know and understand the options you can make an informed decision.
Send me an email with your Social Security statement (both if you’re married) and we’ll get a report to you.
If you’re unable to retrieve this article let us know and we’ll send you a copy.
