Many of our clients often struggle with the decision of when to start taking their social security benefits. There are many factors to consider when making this decision and there is often no perfect answer to the question. However there are tools out there that we can use to help guide you through the process.
There are three alternatives when it comes to social security: take it early at age 62, wait until your normal retirement age, or wait as late as age 70. You should receive an annual statement that details your social security benefits for you. This statement shows you how much you would receive monthly if you retire at each of these different age alternatives. If you don’t have this statement you can use their benefits calculator online which can be found here.
The first step in deciding when to begin taking your benefits is to understand the impact of the delay. When you delay taking benefits, the amount you eventually receive will increase. What needs to be determined is how long it will take you to begin benefiting from this delay of your distributions. In other words, what is your “break-even” age? We can very easily calculate this for you and it will give you a good idea of how long it will take you to recoup the benefits that you lost by delaying your distributions.
Once we have determined your break-even age there are many other factors to consider before reaching a decision. Nobody knows how long they will live, but you should analyze your life expectancy and consider whether you think you will live long enough to get to your break-even age. You also need to analyze your current expenses and cash flow needs to see if taking distributions now are necessary. You need to look at how much money you have saved in retirement accounts and what kind of return you expect to earn on these investments. Of course it is also very important to consider the tax impact of taking distributions as well. Up to 85% of your social security benefits may be taxable depending what other income you might have. All of these factors need to be considered when making this decision.
This is not always a simple decision and we would be happy to help you understand the alternatives and what they mean for you. We can also help you look at the overall picture so that you can see how the decision will affect your retirement plans. Feel free to contact us for more information.