Should You Take Your Social Security Early?

Hello everybody! My name is Ty Bernicke, and I’m going to talk to you a little bit about whether you should take your Social Security early or not.

Understanding the Break-Even Age

To understand whether you should take your Social Security early or not, it’s important to understand two key variables. One of the things we’re going to discuss is called the break-even age.

Defining the Social Security Break-Even Age

The break-even age is a crucial concept. Let’s start by talking about it because there have been many articles written on this topic. In my opinion, the most comprehensive article ever done on this subject was by a former Social Security Administration executive named Doug Clemons.

So, years ago, Doug Clemons wrote a research article for the Journal of Financial Planning. This article focused on the break-even age and essentially explained that it is the age at which the cumulative benefits from claiming Social Security at a later age equal the cumulative benefits from claiming at an earlier age. For example, if you’re comparing whether to take your Social Security at 62 versus 66 or at 62 versus 70, you need to determine how many years you would have to live to make it beneficial to delay taking your Social Security to these older ages versus the younger age.

Calculating the Break-Even Age

Doug Clemons looked at various variables, such as future tax rates and inflation. He analyzed a variety of other factors as well. Based on his research, he found that the break-even age, when comparing claiming at 62 versus 66, was somewhere between 81 years old and 86.5 years old.

This means that if you knew you were going to die at age 78, it would be better to take your Social Security at the earlier age. If you knew you were going to live to age 95, it would have been better to delay taking your Social Security until age 66.

Similarly, if you compare 66 versus 70, you’ll see that the break-even ages are a little later, requiring you to live longer to justify the decision. You could compare various ages, such as 62 versus 70 or 63 versus 65, but for the sake of his article, these were the comparisons he made.

How Age Affects Benefits

It’s interesting to note that male life expectancy at 62 is 83.5 years, while for females it is 86.2 years. The expected life expectancy at ages 66 and 70 also aligns closely with what Doug Clemons found.

Essentially, this means that the Social Security Administration was not mistaken when they determined the income you would receive at certain ages. They used actuaries to calculate how much they would have to pay out based on average life expectancy at any given time.

Factors Influencing the Decision

It’s important to understand that the break-even age is just one variable to consider. There are other factors that can make it more attractive to take Social Security at a younger age or to delay it.

For instance, if you have active income before your full retirement age (which is 67 for most people), your Social Security benefits will be reduced, which could hurt you a little bit. If you’re worried about the solvency of the Social Security Trust Fund in the future (which is projected to run out within the next 12 years if changes aren’t made), that would be an argument for taking your Social Security earlier to get your hands on your money while you can.

If you have dependent children, taking Social Security early provides free money that you wouldn’t receive if you delayed. Many people with younger children take their Social Security early for this reason.

Your life expectancy and health status are also critical factors. If you have a short life expectancy or poor health, it might be better to take your Social Security earlier. Conversely, if you have a long life expectancy and are in great health, it might be more beneficial to delay taking your Social Security until later retirement ages.

Additional Considerations and Implications

There are many other considerations as well. The rate of return on your investments, inflation, and the need for health insurance before age 65 are all factors. Social Security counts towards your modified adjusted gross income, which can increase the cost of your health insurance. How much you want to leave to your estate is another factor. There are many competing variables, and your situation will likely be different from someone else’s.

So, please don’t read one article and think it applies to your situation. Most articles can’t delve as deeply into the unique circumstances of your situation.