50 When to take Social Security

There is an eight-year range to take Social Security. The earliest age you’re allowed to claim benefits is 62, and as such, it’s the most popular age to file for Social Security. Age 70, meanwhile, is the latest age you can claim Social Security and still get credit for delaying your benefits — so while you technically don’t have to file for benefits when you reach 70, there’s zero incentive to wait any longer. If you don’t choose to file for Social Security as early as possible (62) or as late as possible (70), you can claim your benefits somewhere in between.

At full retirement age (66 to 67 depending on your age), you can earn as much money with no penalty.  If you are under full retirement age for the entire year, $1 from your social security benefit is deducted for every $2 you earn above the annual limit.  For 2017 that limit is $16,920.

For example, if you take social security at age 62 and earn $40,000 during that year, you will receive $11,540 less in social security benefits. $40,000 is $23,080 above the limit – the penalty is half of that amount.

For every year you wait on taking social security the amount you will receive goes up by 8% (2/3% per month).  Social Security is a lifetime benefit increases with inflation.  However, by delaying social security benefits you are not receiving payments immediately.

For example, if you would receive $1,000/month at age 62, $1,470/month at age 67, or $1,900/month at age 70.  The table below shows the accumulated amount of money from taking Social Security at different ages assuming no earnings on the money taken from Social Security.  The values shown are in today’s dollars – assuming that the investment grow with inflation but not any more.

AgeTake Social Security at Age 62 (2020)Take Social Security at age 67 (2025)Take Social Security at age 70 (2028)
62$12,000$0$0
65$24,000$0 $0
64$36,000$0 $0
65$48,000$0 $0
66$60,000 $0 $0
67$72,000 $17,640 $0
68$84,000 $35,280 $0
69$96,000 $52,920 $0
70 $108,000 $70,560 $22,800
75 $168,000 $158,760 $136,800
80 $228,000 $246,960 $250,800
85 $288,000 $335,160 $364,800
90 $348,000 $423,360 $478,800
95 $408,000 $511,560 $592,800
100 $468,000 $599,760 $706,800

Given that there is more Why doesn’t everyone would you not wait to delay your Social Security benefit?  Here are four reasons:

1. You need money sooner

If you need money before age 70 to avoid accumulating debt, it may be beneficial to take Social Security early.

2. Health

Note that the break even point is 78-79 with investments just keeping with inflation.  The table below shows that if you earn 5% above inflation, the break even point is about 85 years old.  If your life expectancy is lower, it could be advantageous to start taking Social Security earlier than age 70.

3. You don’t think Social Security will last

As with life expectancy, if you think Social Security will not be paying out before the break even point, it may be worth starting earlier than age 70.

4. You can earn a high return on your investment

If you earn a high return on the assets you receive early, it may work out to be better to take Social Security earlier.

The following table shows the accumulated amounts if you earn 5% above inflation per year on all investments.  If inflation is 2-3% per year, this assumes that you could earn 7-8% on your investments. All of the values in the table are in today’s dollars.

AgeTake Social Security at Age 62 (2020)Take Social Security at age 67 (2025)Take Social Security at age 70 (2028)
62$12,000$0$0
67$81,623$17,640$0
70$132,319$76,031$22,800
75$235,184$194,509$155,084
80$366,468$345,720$323,915
85$534,024$538,708$539,391
90$747,873$785,015$814,399
95$1,020,804$1,099,373$1,165,387
100$1,369,140$1,500,581$1,613,346

As shown in the table above, the break even point moves out to age 85 with a 5% above inflation return on investments. Up from 78 years old, with investments just keeping with inflation.

The age you take Social Security depends on several factors, it is not best to take it at one particular age for everyone.

 

I appreciate any feedback for our AIO Financial blog. Please contact me if you have any comments, questions, and suggestions. You can comment here or contact me through Facebook, Twitter, email (bill@aiofinancial.com), or call 520-325-0769. Click here to schedule a free meeting with Bill Holliday, CFP.

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