The conventional wisdom about when to draw Social Security seems to be simple: the later the better.
While you’re eligible to start drawing Social Security at age 62, your monthly benefit is reduced by 25 percent from what you would receive at your full retirement age (66 or 67, depending on when you were born). If you wait until age 70, you can expect your monthly Social Security benefit to be 76 percent more than if you start drawing at 62.
But not everyone can afford to wait, and there are some people who are better off drawing the moment they become eligible.
“Probably the primary time is when there’s a health issue,” says Leann Sullivan, vice president at TFC Financial Management in Boston. Someone who can no longer work because of illness or who doesn’t expect to live very long would be smart to draw sooner rather than later, she says.
[See: 10 Best Places to Retire on Social Security Alone.]
“Breakeven is still some time around age 80,” Sullivan says. “That’s a long life expectancy.”
But not everyone has the ability to be as strategic. People who have suffered job losses after age 62, workers who are unable to keep up with the physical demands of their jobs or families struggling with unemployment or high medical bills may have no other way to make ends meet.
“Unfortunately, there are many people in this country who fall into that bucket,” says Jean Chatzky, a contributor to AARP The Magazine’s Finance & Retirement Digital Magazine and AARP’s financial ambassador. “What people should be trying to avoid is taking it early when you really don’t have to.”
Since you effectively get a 6 percent boost in your monthly benefit for every year you wait to draw Social Security between 62 and your full retirement age, pulling from an IRA or other retirement account might be smarter than drawing Social Security early, since those accounts aren’t guaranteed to grow 6 percent a year, Chatzky says. (From your retirement age up to 70, the monthly benefit amount increases 8 percent for every year you wait.)
Plus, if you are working, your benefits are cut by $1 for every $2 you earn above $15,720 per year until you reach your full retirement age. However, the benefit reduction does get taken into account in the calculation of your future benefits, and your benefits at full retirement age will be increased if your earnings cause you to lose benefits. Once you reach your full retirement amount, your earnings from working don’t affect your benefits.
The calculations get more complicated for a couple or for someone eligible to draw widow’s benefits from a deceased spouse. Divorced people may also be eligible for benefits from an ex.
If a family needs the money, it often makes sense for the lower-earning spouse to draw Social Security early and wait at least until full retirement age for the second spouse to collect. The surviving spouse will then be eligible for the higher benefit for life.
“Once I take a reduced benefit, I’m always going to have a reduced benefit,” says Joseph Lucey, president of Secured Retirement Advisors in St. Louis Park, Minnesota.
[See: 9 Important Ages for Retirement Planning.]
He usually advises widows or widowers over 60 to at least consider taking one of the two benefits sooner, even if they are still working and may get reduced benefits. Once a widow reaches full retirement age, or later if she wants to wait, she can collect the higher earner’s benefits for the rest of her life.
“Any time there’s a widow, she should always consider taking one of the two benefits as soon as possible,” Lucey says. “By taking that early, they can increase their cash flow.”
Those with complicated family situations may want to use a tool like MaximizeMySocialSecurity.com, which costs $40 a year per household, or consult a financial advisor who can assess your whole picture, including retirement savings and any pension benefits. Many financial advisors can do the calculations for you. You can also see what benefit you’ll receive at which age at the Social Security website.
Most people would be better off cutting expenses and continuing to work until full retirement age, even if they earn less than they did in a previous career. A recent Bankrate.com survey found that 70 percent of people who have not yet retired plan to continue working at least part time even after they reach retirement age.
“It’s a mistake to prepare to take Social Security until they look at what they have and what they’re going to need,” Chatzky says. “Maybe this is the time to regroup and do something you’ve always wanted to do.”
Here are four situations in which it may make sense to take Social Security early.
You can’t live without the money. For those who have no other source of income or not enough money to pay expenses, early Social Security may be necessary to put food on the table. “A lot of times it’s going to make sense for one of the spouses to collect a little bit earlier,” Lucey says. “There’s just a lot of cases where additional cash flow earlier in retirement makes a lot of sense.”
You don’t expect to live past age 80. According to the Social Security administration, a man turning 65 this year can expect to live to just over 84. For a woman, the expected age is 86 1/2. But people with terminal illnesses or serious health issues may know they won’t live that long, so taking Social Security early makes sense.
You can’t work but you aren’t eligible for disability benefits. Someone who had a physically demanding job may not be able to do that particular job anymore but isn’t considered disabled because he or she can do other kinds of work. For individuals who are otherwise in good health, seeking a new job at 62 may make sense. Others might be better off drawing Social Security.
[See: The Best Cities for Retirement Jobs.]
You’re a widow or widower. Widows or widowers can draw from their former spouse’s benefits starting at age 60, and that does not affect their ability to draw their own benefits later. Divorced spouses or minor children may also be eligible for benefits.
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Does It Ever Make Sense to Take Social Security Before Your Full Retirement Age? originally appeared on usnews.com
