When should I take social security

Updated: When to take Social Security

Question:
Should I take Social Security early, or on time, or late?

Answer:
It depends. Below are three reasons why I generally recommend to take it as early as possible. I also provide a major exception to my general recommendation.

Reason #1 – Social Security is scheduled to cut benefits in the year 2034:

They are not hiding this. Read it here. They anticipate a 24% cut in benefits then. How people whistle past this point is stunning. What will need to happen for us to take this seriously? Will we just have to wait until the year 2034 to see if it’s true? Should we take any measures now?

Reason #2 – The Cost of Delaying:

Delaying is not free. You have to give away the money you could have been collecting.
The earliest you can start collecting Social Security benefits is age 62.
If you don’t collect at 62 you are giving away the money you could’ve collected.
Let’s translate what that adds up to:

Suppose your Full Retirement Age (FRA = the age you could collect full Social Security benefits) is 66, and your FRA benefit is $2,800 a month.  You could wait until FRA, or you can start drawing your SS benefit at age 62 with a 25% reduction.

Breathe – I know a 25% permanent reduction sound scary, but it’s not necessarily bad!   Yes, it’s less money, but it’s less money for more time.

A 25% reduction off $2,800 would equal $2,100.
If you were to receive $2,100 monthly benefit at age 62, you would receive $100,800 by the year you turn 66 (FRA) ($2100 x 12 months x 4 years = $100,800).

By delaying, you are giving away that $100,800. Even if you didn’t grow the $100,800, you’re still $100,800 ahead of the guy who waited until age 66 to take his full SS benefit of $2,800.
How long will it take the one who delays to age 66 to catch up to the one who claimed at 62?

Doing the math: By delaying, your Social security benefit will increase by $700 a month. ($2,800 full benefit – $2,100 reduced benefit = $700) At the pace of $700 per month, it would take you 12 years to catch up to where you could have been had you taken the $100,800 before age 66 ($700 x 12 months x 12 years = $100,800).
So, that means, there was literally no financial gain for the first 12 years after your delay (from age 66 to age 78). It’s only after 12 years that you start to see the benefit of delaying.

Is waiting 12 years “BAD?”
Waiting 12 years just to recoup your money doesn’t sound so amazing. But you’re doing it in the hopes of a future benefit. Does the increased monthly benefit make up for it?
Whenever you give away money now for a future financial benefit, that’s called investing. How does an investment in Social Security perform?
Let’s quantify it in terms of rate of return.
If you decide NOT to take SS early at 62, but instead wait until 66, you essentially are choosing to invest $100,800 into Social Security!  

As we saw, it will take you 12 years to recoup your investment. In fact, every 12 years you will get back another $100,800. That means it’ll take you 24 years to double your investment or 36 years to triple your investment.  An investment that doubles in 24 years has a 3% compounding rate of return.  An investment that triples in 36 years has a 3.2% compounding rate of return. So, delaying to age 66 means investing $100,800 with Social Security and expecting to yield a 3% – 3.2% return on your investment. 

That’s a relatively conservative rate of return. Better than some, not as good as others. Had you taken the SS early at 62, invested that $100,800 and yielded a return greater than 3% – 3.2%, you would have been better off taking it early than waiting until FRA.

Whose money would you rather spend?
Even if you spent the $100,800 and didn’t invest it – and most people will spend it – still, by spending Social Security’s money whose money didn’t you spend?

If you would like to discuss this more please request a complementary consultation below.

Or email me here – stephen@stephenzelcer.com

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