It’s kind of hard to know exactly when you should file—even if you only consider age (which you shouldn’t). You can take your benefits as early as 62. However, the earlier you claim, the less you’ll get. You can delay until 70 and you’ll get 8% more for each year you wait past your full retirement age.
Kiplinger’s recent article, “Social Security Timing Should Be Part of Larger Financial Plan,” notes that some people don’t have much choice and claim at 62, because they need the money. In addition, there’s the question of whether Social Security will be solvent, when it’s time for you to start collecting. There are also those who really don’t give it much thought. They’re tired of working and file before their full retirement age.
Most people like to think there’s some magical calculation that will give them their exact “break-even point,” so they don’t claim too soon or wait too late. You can find this by using calculators provided at www.ssa.gov/planners/calculators/ and www.aarp.org/tools/.
There are several factors that can greatly impact what you, as an individual, actually receive. Consider these points to help you make a smarter decision about when to file:
Health and family history. If you’re unhealthy or have a family history of some illness, you may want to retire and take your benefits as early as possible. However, if you’re healthy and/or most of your family members have had a long life, you may want to delay filing and get the maximum benefit to see you through, what could be a decades-long retirement.
Spouse. If you’re married, one of your primary concerns is what will happen to your spouse, if you die first. When one spouse dies, the lower of the two Social Security payments is eliminated. If you have a pension, based on which survivorship option you choose at retirement, he or she also could lose that income. Therefore, it’s critical to maximize the higher earner’s benefit when possible, especially if Social Security will be a major part of that income. If the higher earner in the family is one with a poor family history of longevity, you should plan early, if delaying is not an option and you have to claim a smaller benefit.
Taxes. The IRS measures your “provisional income” to determine whether you must pay taxes on your benefits. It’s calculated by adding your adjusted gross income, any tax-free interest you received and half of your Social Security benefits. If the sum is more than the designated threshold ($25,000 and up annually for singles, and $32,000 and up for those married filing jointly), based on your filing status, your Social Security benefits could be taxed up to 50% to 85%. If you’re receiving Social Security and withdrawing from your IRA at the same time, you may pay more in taxes. You might want to wait to claim and withdraw from your tax-deferred accounts at a lower rate.
Other assets. Before you decide to delay claiming to save on taxes or to get a higher Social Security payment in the future, be certain you have enough income to cover your current expenses without drawing too much from your retirement savings. You’ll want to leave some money there to keep growing, in case you need it later in retirement.
Your legacy. If leaving behind something for your children is a priority, you could use your Social Security income for that purpose. You could claim your benefits (which they can’t inherit) and leave more in your IRA (which they can). Or, if you are wealthy and don’t need Social Security to support your lifestyle, you could might claim your Social Security benefits and use that money to purchase life insurance.
Remember that your Social Security filing decision should not be made in a vacuum, but should be an important part of an overall financial plan.
Take your time, think it through and get some help from an experienced estate planning attorney.
Reference: Kiplinger (March 15, 2019) “Social Security Timing Should Be Part of Larger Financial Plan”