Video by Justin Pritchard, CFP®
Note: Unlike most articles on this site, this page is a transcript of a video. Enjoy!
00:00 – Age 62 to 70 Is a Long Time (When is Best?)
Social Security makes up a big part of retirement income for most people, and you can claim anywhere from age 62 to 70.
But that’s a wide window, and during that time, you might be making big decisions about your life. Like do you keep working or do you withdraw from your retirement savings?
So it’s a big question to ask: At what age should you take your Social Security benefits? As you probably know, there’s no way I can tell you in a video at what age you should claim, but we can talk about the most important aspects to consider. And with that information, you can hopefully make a more informed decision that helps you get the most out of your retirement.
Ultimately, you want to do a detailed analysis, so that’s not just looking at the Social Security benefit in a vacuum. But you’re looking at all of the different moving parts. So, what are your income sources? What assets do you have? What types of returns might you get? What does inflation look like? How’s your health?
00:41 – Look at the Big Picture and Run What-Ifs
And you probably want to do some what-if scenarios—so, more optimistic and more pessimistic. Maybe you have higher returns, lower inflation, whatever the case may be. These are all the things that can help you understand the landscape of what your choice looks like. So, this is obviously what I do with clients when I help them do retirement projections. But you can also think about a lot of these things yourself if you’re doing your own planning.
Starting with some basics, you’ve got a lot of good information on your Social Security statement. And logging into your account is always helpful. So you can claim again as early as age 62—that’s what’s called reduced claiming or reduced benefits—or wait until age 70 for your maximum benefit. Now, you will have a chart very similar to this on your own statement, and this tells you with your customized numbers what you might expect.
02:17 – Working While Taking Social Security
So you also along the way have your full retirement age (or FRA) and that’s an important number. So that’s where you get an unreduced benefit, and you can also earn as much as you want from working. Assuming you keep working, you can earn as much as you want from working at FRA without getting a reduced benefit. So just in case you are thinking of working, it’s important to know this, and the numbers get updated so you definitely want to go to the Social Security administration’s website. But basically, they set limits, and if you earn more than that limit during a year you would get a reduction in your benefit. Now, that eventually gets credited back to you. So, when you’re under your FRA for the full year, it’s reduced by one dollar for every two bucks you earn over the limit during the year in which you reach FRA. The reduction is smaller and again after you reach FRA you can earn as much as you want without worrying about that reduction in benefits.
03:00 – Social Security Ages Explained
So, here’s another way to look at this: Your full retirement age (your FRA) is based on your birthday and so this is going to impact when you are claiming. Now, for a lot of people approaching retirement these days, born in 1960 or later, the full retirement age is 67. So that’s when you get your full benefit unreduced, and you can earn as much as you want. But you can claim as early as age 62.
So if you did that in this example, you get 70 percent of the full benefit. In other words, if the benefit was $1,000/month that you’re entitled to at your FRA, you would end up getting $700/month if you claim at age 62. And that reduction of 30% or 300 bucks a month would last for the rest of your life.
For each month that you wait to take benefits, you get a slight increase and so you can even wait until after your full retirement age, and you effectively get 8% per year of an increase if you go that route. Again, it’s a monthly increase, but it amounts to eight percent per year, so that’s a good way to maximize your income if you have the ability to wait. And we’ll talk in more detail about that but it’s important to know a couple of things.
04:24 – Maximum Benefit: Survivor Benefits, Inflation (COLA)
Number one is that this is what would go to a survivor if this is the biggest benefit in a married couple, for example. So, if you are concerned about dying first and your spouse might take over your benefit, it could potentially make sense to wait until age 70 to maximize your benefit. And that’s because the surviving spouse effectively gets to take over the bigger benefit that is available: either their own benefit that they’re entitled to or the biggest benefit that you were entitled to when you pass away.
It’s also nice to maximize that benefit if you’re able to because any future inflation adjustments once you start taking income go off of that higher base. So, if there’s a two or three or a bigger percentage inflation adjustment, that would go off of a bigger starting point, which is always helpful.
05:17 – Where Are My Delayed Credits?
Keep in mind, though: If you do delay after your full retirement age but before age 70, you won’t necessarily get that full increase until the next January. So that might affect when exactly you take your benefit. If you take it mid-year there could be a couple of months where you’re saying “Where exactly is my increase? I thought I would get more.” It will come in the following January. And I’m going to put a link in the description below to a video that explains that in more detail because it can get kind of complicated.
05:50 – Need to Claim When You Stop Working?
Now remember that you don’t necessarily need to take your benefit at the same time you stop working. You can retire at let’s say 60, and wait until 67 or 70 to take your benefit. There are a couple of good reasons for doing that. But be aware: If you do (we’re going to get to this later in the video), it is really critical that you go on the Social Security website and use their calculator.
I’ll talk about that in a minute, but I want to paint a picture of what it might look like, and why you might consider stopping working and not taking your benefit right away.
06:23 – Example: Spending Down Assets While You Delay Social Security
So this could help paint a picture of what it might look like where you retire at let’s say 64, but you’re going to wait until age 70. You’re spending down some assets. You started with roughly $500,000, and this can certainly be nerve-wracking.
It is a bit of a leap of faith. But eventually, those benefits kick in. Maybe you have a pension or something else that can help you out. And in this case, that was the case where these folks are eventually going to get retirement income sources that actually cause their assets to increase during retirement. That’s super helpful. Not everybody is that fortunate, but the concept is the same for roughly everybody. You might start spending down some assets and waiting to take those benefits.
So, why might you do that? Well, here’s an example of somebody who is in a relatively low income tax bracket when they stop working at 60, and then things bump up around age 65. And of course, those RMDs (or those required minimum distributions) begin at age 72 and bump them into a higher bracket. So the green line here is that 12% or 15% tax bracket. That’s the top end of that bracket, and then they’re moving into the next higher bracket. So is there a way to maybe smooth this out and lop off some of this stuff that’s sticking out? Well, in this case, if we say let’s go ahead and fill the 12% or 15 percent tax bracket, and let’s zoom back in… by the way the 12% or 15% refers to you know, some future potential tax law changes. You can think of it as the 15% bracket if you want.
So in this case, the green is where they’ve done some conversions to fill in that 15% tax bracket, and the result is that they have less that’s sticking out above that green line. I’m not sure if this makes it easier or harder to see. Here’s where they are with the conversion, here’s where they are without the conversion. And by doing that, they’ve been able to reduce the taxes or the rate at which they’re going to pay later, which could help them out.
This could also come into play with your Medicare premiums. Not in this particular case, really because it’s going to be a while before this client bumps up into a higher bracket there. But in some cases, if your income is high enough, you may end up paying higher Medicare premiums in later years. So that’s important to watch as well.
Ultimately, in those examples we’re talking about waiting to take benefits so that you can leave some room to fill in those tax brackets whether you’re just taking withdrawals or doing conversions. If you don’t need the money, whatever the case might be, that’s one thing to think about as you think about your Social Security age.
09:24 – Longevity Matters
Longevity might be another factor, And we’ll talk about good reasons to claim early at some point here. But in general, the conventional wisdom is that the better your health or the longer you think you’ll live, the later you would tend to claim (or the more you’d get from waiting to claim) whether that’s full retirement age or 70. And of course, there are other questions, like What are you going to do with the money? Are you going to spend it?
If you need the cash flow, then maybe you just have to claim early. But if you’re thinking of investing the money, there are a lot of questions there, like How certain can you be of your returns? What exactly is going to happen?
We just can’t predict the future, so longevity is one other thing to look at as you consider the age at which you take your benefits. And this is a good time for a friendly reminder that this is just a short video. It can’t possibly cover everything, and you really do need more information. So please triple-check everything with the Social Security Administration. Check with your tax professional and other financial professionals, and please hit pause and read this carefully if you need some more time. I am Justin Pritchard, by the way. I help people plan for retirement and invest for the future. And in the description, I’ve put a couple of links. They’re related to the Social Security topic in particular as well as some broader retirement planning information. I think you’ll really find those resources helpful, so be sure to check that out.
10:55 – When Claiming at Age 62 Makes the Most Sense
Now let’s talk more about when it could make sense to claim at age 62. Once again, if you do need that cash flow, then you may not have much choice. Just go ahead and take those benefits so that you can survive and be comfortable and maybe stop working, whatever the case may be.
It could also make sense to take benefits at 62 if you’re concerned about your health. If you don’t expect to live a long life it could make sense to start getting that money now because we’re not expecting you to continue with that reduced benefit for many decades.
If you are going to be working, it makes the most sense to do that if you’re going to be working part-time. And that way, you’re earning less than the earnings limit for the reductions. It might not make quite as much of your Social Security benefit taxable. You just want to keep that in mind if you plan to keep working and you’re claiming before your full retirement age.
It could also make sense to claim early so that you unlock a spousal benefit. So if a spouse is going to take a spousal benefit based on your work record, they can’t do that until you start taking your retirement benefit. So it doesn’t always make sense. You have to run the numbers and look at the big picture, but in some cases it could make sense for you to take your benefit so that your spouse can begin taking their spousal retirement benefit.
11:51 – Spousal Considerations, Widows, and Divorcees
There are a lot of spousal issues to think about as you look at the Social Security claiming decisions. I think earlier I mentioned that the survivor benefit is going to be bigger, whether it’s the deceased spouse or the surviving spouse. So it really is important to think about what happens if one of you dies first.
And look at person A and person B if you are in a married couple. What’s going to happen if one of you dies first, and how is the other going to fare? Again, if the household loses a source of income like one of those monthly Social Security benefits, it can be difficult. They go into a single tax bracket. There’s less money coming in. So we want to make sure that you look closely at how that could unfold.
Or if you’re divorced, or if your spouse has passed away, you may have other opportunities as well. For example, if you’re widowed, you can potentially take a survivor benefit and then later switch to your own benefit (or vice versa) depending on what makes the most sense for you.
Always look at all the different options, and just decide what’s going to be best for you.
13:26 – Why You Need to Use the Social Security Calculator
So if you’re going to stop working before you take benefits, it’s critical that you do some calculations. And you really want to go on to the Social Security Administration’s website. They’ve got a calculator there, and here’s why this is so important: When you look at your Social Security statement, it basically says that these estimates are going to assume you continue earning basically what you’ve been earning until you begin your benefits.
But if you stop working at, let’s say, age 60, and you’re not going to claim until full retirement age or 70, that’s not the case. You don’t keep earning that income, and so their estimate is going to be wrong.
So, what you can do is use their calculator, again right when you log in it’s probably right there or it should be easy to find, and that gives you an opportunity to say I’m going to start earning zero income. Or, I’m going to work part time and I’m going to earn substantially less. And with that information, they can give you an updated estimate of how much you might get at different ages. It’s really important that you do that because the numbers are probably going to be lower.
You’re probably going to get less if you have zeros in your calculation. That might not be the case, but it often is, so please do that. And that way, you can make informed decisions and avoid potentially some nasty surprises.
14:52 – What if Social Security Runs Out of Money?
Another question that always comes up is that people want to know: Maybe Social Security’s in trouble. Maybe it’ll run out of money. So, should I just claim as soon as possible and start getting what I can before it goes belly up?
Yes, it is true that the trust fund is expected to run out of money in, let’s say, 2033 or 2034. It depends on on when you look at it, and what’s happening. But at that point, the reserves would run out of money. Now, when that happens, under the current assumptions, about 75 percent of the needed money is still coming in from the current workers at that point. So one way to look at it is you say well, maybe they’ll just cut everything 25% across the board. Everybody gets 25 percent less. I would not expect that, especially if you’re nearing retirement or in retirement at this point.
There are a lot of different ways that they can fix the system. Naturally, all of them mean that it gets less generous for somebody. That might be the people who are working. It might be the people who are about to retire. It might be you. It might be who’s already retired. But by tweaking little dials they can make changes that don’t necessarily mean a 25% cut across the board. I just wouldn’t expect that.
So, if you do claim early simply because you’re concerned about that type of cut, it could end up backfiring. So let’s say that the inflation adjustments get less generous. Well, if you start with a reduced benefit and then you get smaller inflation adjustments on top of that, that doesn’t help you. Or, if there are other cuts—maybe there is that 25 percent cut across the board (again, I don’t think it happens, but if it does, wouldn’t you want to start with a bigger benefit as opposed to a smaller benefit?). Now, I have no clue what’s going to happen, so maybe i’m completely off base. Maybe there will be these big cuts. You can’t predict the future, but that’s just food for thought.
If you are basing your decision on when to take Social Security primarily on the concern of it running out of money, I would say be very careful doing that.
17:05 – Tools for Running Your Numbers
If you want to run some numbers, obviously I’m biased. I have my own tools that I use with clients, but there are consumer tools out there that are available to you. So a couple of them that people like are Open Social Security or Maximize My Social Security.
- Tip: Use the Early Retirement Calculator to estimate how much you might need, even if you don’t take Social Security right away.
I can’t vouch for them or guarantee that they’ll tell you what you need to know, and by the way I’m not currently associated with them. I don’t get any payments from them or anything like that and I don’t expect to. These are just names that I’ve heard people have a lot of enthusiasm for and they’re pretty happy with, so I wanted to recommend them to you so you can run some numbers yourself. Hopefully, it’ll help you make some decisions.