Should I take my Social Security at age 62? This is the question many Americans are faced with and unfortunately, there are no "hard and fast rules" when it comes to claiming. This decision is incredibly personal and will be different for everyone. Deciding when to claim your Social Security benefits will depend on several factors, things like your personal health and financial situation.
It may be true that waiting to access benefits will increase your monthly payments down the road but is that the right answer? Not Necessarily. Full access will depend on your date of birth and you may need to access benefits sooner. To help you better navigate this issue, below we’ll examine the variables that could impact when and how you decide to begin claiming your Social Security benefits.
Should I Take Social Security Benefits Early?
Everyone is eligible for Social Security benefits at age 62, but full retirement benefits will only be available once you reach your "full retirement age", determined by your birth date.1 Any benefits received before reaching your full retirement age are reduced by a specified percentage, ranging between 25 and 30 percent.1
Often, this percentage reduction is permanent, meaning if you claim your benefits at 62, the percentage taken off of Social Security would remain, even after reaching full retirement age.2 On the flip side, if you were to wait longer than the full retirement age to claim your Social Security benefit, you would receive a retirement credit. This is a bonus percentage determined by how long you waited, up to a maximum age of 70.2
If you have saved $1,000,000 or more in an investment account either pre-tax or post-tax, there can be a strong case made for claiming benefits early and allowing those investments to grow over time. Naturally, there are a lot of factors that play into this analysis so please contact your financial professional to figure this out.
Is Social Security Taxed?
You bet it is!
Although I don't agree with it, your Social Security benefits are definitely subject to taxes if you hit certain income thresholds. This may happen if the total of half your Social Security benefits plus any additional income is greater than the IRS’s base amount for your tax filing status.3
The current base amounts for 2022 are:3
- Single or Head of Household: $25,000
- Married Filing Separately: $25,000
- Married Filing Jointly: $32,000
85% of your benefit will be taxed if you surpass the following thresholds:
- Single or Head of Household: $34,000
- Married Filing Separately: $34,000
- Married Filing Jointly: $44,000
It’s important to note that for couples filing jointly, ALL taxable income earned by both spouses must be counted - even if one spouse does not yet receive Social Security benefits.
What is Your Family Health History?
Receiving your Social Security benefits early may be beneficial for those with health conditions or a lower life expectancy. This option provides retirees with a steady source of income earlier. This could also benefit those who are no longer working and lack other income sources in retirement.
But again, it's not so simple. If you are the breadwinner and will have a large benefit and your spouse has a family history of longevity and face few health problems, you may find it beneficial to hold off on collecting Social Security benefits until full retirement age as they will be able to take over your benefit in the event of an untimely passing.
The benefits of waiting are clear. But as I hinted above, withdrawing Social Security benefits early could bring a greater advantage, for some. If you have saved one million dollars or more in an investment account, it may make sense to allow those assets to continue to grow over time. Starting with a large base will allow even an average return lower than 5% per year to outpace the growth in Social Security benefits.4
Additionally, investing Social Security funds received has the potential to bring a greater return, as long as the benefits of the investment outweigh the loss from accessing Social Security early. If this is something you are considering, you’ll want to work with your financial planner or investment advisor first to determine if this option is right for you.
Working and Social Security Benefits
You can continue to work past your full retirement age. In fact, working longer can actually increase the total amount you receive in Social Security benefits.2 But you have to be sure to consider tax implications when going this route, as a greater income may bring greater tax implications.
Your monthly benefits could be reduced if you work and collect benefits before full retirement or if you earn over a threshold. The reduced amount, however, is calculated back into your benefits once you reach full retirement age.5
The factors above are in no way a comprehensive list to consider while deciding when to receive Social Security benefits. Rather, the decision will depend on your personal financial circumstances, beliefs, goals, and forward planning. Things like ROTH Conversions, income strategies, pensions, life insurance, and many other issues come into play. For the best guidance, work with your financial advisor to examine your options and determine the best course of action.
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|About the Author
James M. Comblo, CFF
is a Partner and the Chief Compliance Officer at FSC Wealth Advisors. His greatest passion in the financial services industry is helping clients accomplish their dreams both with investments and their personal lives. To learn more about him click here.
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