Over the years, my firm has helped countless individuals and households determine an appropriate Social Security claiming strategy for their unique circumstances. As a result, I have been fortunate to observe how these strategies have affected clients’ retirement. However, it is through these observations that I have realized there is a significant amount of misinformation surrounding the best age to begin taking Social Security income. The choice that may be right for each person is highly dependent on a number of different factors.
Here are some key factors that may influence your decision on when to take your Social Security benefits, as well as some basics to help you understand Social Security.
The Break-Even Age
Before looking at key factors, it’s important to understand the break-even age. The break-even age is the age a recipient would have to live to in order to benefit from delaying their Social Security income beyond the early start date age of 62.
For the purpose of this article, I am going to reference research done by Doug Lemons, a retired Social Security Administration executive who performed extensive analysis on break-even ages. Lemons found the break-even age, when you compare taking benefits at age 62 versus 66, to be somewhere between the ages of 81 and 86.5, depending on a variety of different factors. He did a similar analysis contrasting taking Social Security at 66 versus 70 and found the break-even age to be somewhere between 83.6 and 87.1.
So, someone who chooses to claim their Social Security at age 66 versus age 62 would have to live longer than the range of 81-86.5 years old to justify that decision, and someone choosing to claim their Social Security at age 70 versus age 66 would have to live longer than the range of 83.6-87.1 years old.
Social Security Basics
Before discussing different factors that may push the break-even age earlier or later, it is important to understand some basics surrounding Social Security and retirement.
- The Social Security Administration defines full retirement age (FRA) as the age when someone can begin collecting their full Social Security benefit. Currently, that age is 66 for people born between 1943 and 1954. For people born in 1960 or later, it rises to 67. Eligible recipients can take a reduced benefit as early as age 62, or they can postpone their benefit and receive a delayed credit for each month they delay up until the age of 70.
- A surviving spouse will receive the higher benefit between their deceased spouse and themselves.
- The government makes adjustments, called cost-of-living adjustments (COLA), to account for inflation. As a result, an individual’s Social Security benefits could possibly increase over time.
- A Social Security recipient younger than their full retirement age and earning in excess of $17,640 in active income from a job would likely have had some or all of their Social Security benefit withheld in 2019. This limit increases to $46,920 in the year you reach full retirement age. You do not have to worry about the earnings limits after full retirement age.
- Many people who retire before age 65 can purchase Affordable Care Act health insurance. Depending on income level, people utilizing this as a health insurance option can receive significant tax credits to offset the cost of this insurance.
Now that you understand the basics, let’s look at some of the key factors that can help you determine when to take Social Security.
Factors That Encourage An Earlier Start Date
- You will not have active income from a job in excess of the $17,640 earnings limit prior to your full retirement age.
- You feel Social Security will be reduced in the future due to lack of funding.
- You have a dependent child, which entitles you to additional Social Security income.
- You are single and believe you will pass away before your break-even age.
- You are married and believe both you and your spouse will pass away before your break-even ages.
- You believe your nest egg will earn a strong rate of return throughout your retirement.
- You feel that inflation adjustments to Social Security will be high throughout your retirement.
- You are married, and the historically higher-income-earning spouse is delaying their benefit, thereby ensuring the surviving spouse receives the higher benefit regardless of who lives longer.
Factors That Encourage A Later Start Date
- You will be earning income in excess of the $17,640 earnings limit prior to your full retirement age.
- You feel that Social Security will pay you 100% of your promised benefits in the future.
- Your Social Security benefit will limit your Affordable Care Act health insurance tax credits.
- You are single, and you believe you will live beyond the break-even age.
- You are married and have historically been the breadwinner of the household, and you believe either you or your spouse will live beyond your break-even ages.
- You are in good health.
- Longevity runs in your family.
- You believe inflation will be low throughout your retirement.
- You believe the rate of return that you will earn on your investments earmarked for retirement will be low.
No Single Answer
There are many factors to consider when determining the ideal age for you to take your Social Security income. Depending on your unique circumstances, some of these factors should potentially carry more weight than others. Before taking Social Security, I suggest a thorough analysis of the factors mentioned above.