7 Reasons Why You Should Take Your Social Security Early

Hello, everybody. My name is Ty Bernicke, and today I’m going to go over seven reasons why you should take your Social Security early.

Before I go over those reasons, I think it’s extremely important to understand what the break-even age is. There have been many different articles written on what the break-even age is. The fact of the matter is, there isn’t one break-even age because it’s dependent on a set of variables that are almost impossible for us to predict at the onset of your decision.

One of the best articles I’ve ever read on the subject was written by a former Social Security executive named Doug Lemons. He wrote an article for the Journal of Financial Planning many years ago. He looked at a variety of different variables that can move the needle one way or the other as it pertains to when you should take Social Security income.

He looked at things like the tax implications of your decision, inflation, and the rate of return that you would make on your investments. Based on all these different variables, he compared whether it makes sense to take it as early as 62 or whether it would make sense to delay it until 66. He even looked at comparing taking it at age 66 versus age 70.

He found that the break-even age for most people is going to be somewhere between age 81 and 87.1 years old, depending on all these different variables. Essentially, what that means is if we knew for sure you were going to live to the age of 95, generally speaking, it would make sense to delay taking your Social Security income.

If you’re going to pass away before this range, it makes sense to take your Social Security income earlier.

In addition to the variables that he looked at, there are a whole bunch of other variables to consider. I’ve listed some of them up here, but at the end of the day, you have unique circumstances that are very specific to you, and your circumstances aren’t going to be the same as somebody else’s.

When you read articles written on the subject, a lot of times they fail to consider all the different moving parts. So today I wanted to hopefully elaborate on some of these different variables and discuss why it can make sense to take your Social Security income a little bit earlier for some people. Again, this isn’t a broad stroke set of advice because every variable is different for your unique circumstances.

Reason #1: Earnings Below the Annual Income Limit

Reason number one that can move the needle a little bit more towards taking your Social Security income earlier in retirement is if you will not have active income from a job in excess of the $23,400 earnings limit. Active income again is active income from a job; it is not pension income—that is not included as active income.

It could also include net income from a business.

If you’re going to be under that level, they’re not going to be taking any of your Social Security income away from you prior to your full retirement age, which for most of you listening to this is going to be 67 years old. Depending on your date of birth, it could be as low as 66 years old, but generally, for most of you, it’ll be 67 years old. If you exceed this level prior to your full retirement age, you’re going to have some of your Social Security withheld. If you’re not going to exceed that level, that’s a reason why it can make sense to move the needle a little bit more towards taking your Social Security income earlier.

Reason #2: Concerns About Social Security’s Future

Another reason why it can make sense to take your Social Security income earlier is if you are worried about the Social Security trust fund running out of money and therefore benefits being reduced in the future. It would make more sense to get your hands on your money sooner rather than later, right?

If you don’t have a lot of confidence that the government is going to fix the problem with the OASDI trust fund—which is essentially the Social Security trust fund projected to run out in the year 2033—it makes more sense to get your hands on your money sooner rather than later if you don’t have confidence that the government is going to fix that problem and pay you 100% of what is promised throughout your lifetime.

Reason #3: Dependent Children

Reason number three: If you have a dependent child, that will entitle you to additional Social Security income. If you don’t start taking your Social Security income, however, each year that you don’t take it you’re forgoing extra income that you’ll never get back.

So again, if you have a dependent child that can definitely move the needle towards taking your Social Security income sooner rather than later—all things being equal.

Reason #4: Health and Life Expectancy

Number four: If you are single and believe you will pass away before your break-even age, obviously that’s a reason why I would move the needle towards taking your Social Security income early.

If you are married and believe both you and your spouse will pass away before those break-even ages we talked about, that also will move the needle towards taking your Social Security income earlier.

Reason #5: Confidence in Investment Returns

Number five: If you believe your nest egg will earn a strong rate of return throughout your retirement, it would make sense to keep as much money in your investment account as possible. One way you can do that is by—rather than taking an income stream from your nest egg—taking that income stream from Social Security instead, which will allow that nest egg to continue growing.

Conversely, if you don’t have confidence in the rate of return of your investment portfolio through retirement years, that would be a reason to delay taking your Social Security income.

Depending on your level of confidence in investment returns, this can move the needle toward taking or delaying benefits.

Reason #6: Spousal Strategy

Number six: If you’re married and historically the higher-income-earning spouse is delaying their benefits—so if you’re married and your spouse was the breadwinner for most years—and they’re delaying their Social Security benefits, by them delaying their benefits they ensure that higher amount will continue not only for their lifetime but also for yours if they predecease you.

That higher benefit will continue for as long as you’re alive while your lower benefit goes away.

If you’re in this situation where you’re the lesser breadwinner but your spouse was historically earning more and delaying their benefits ensures more security for both spouses—it may give you confidence in taking yours earlier.

Final Thoughts

Hopefully today I gave you some different things to think about! The most important thing to understand is there are many variables—some favoring early benefits and others favoring delays—and these depend entirely on your unique circumstances.

We strongly encourage consulting with someone before making this decision because it’s something you only get one chance at doing right.