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Should I Delay Taking Social Security Past My Full Retirement Age?

Should I Delay Taking Social Security Past My Full Retirement Age?

When deciding at what age to take Social Security, it can be very confusing and there are many things to consider before making this decision.  Let’s take a look at some of the issues that may apply to you.

Once again like we did in the previous article on taking Social Security Early, let’s take a look at some important facts to consider:

  1. Every year that you wait past full retirement age your benefits grow 8% until the age of 70. Inflation increases will be based in the higher amount.
  2. The breakeven age if you decide to delay until age 70 rather then taking it at your full retirement age is between age 82 and 83.
  3. Keep in mind when a spouse dies, the survivor will receive the higher of the two social security payments between you, but not both.

This entire analysis is making one very important consideration: Social Security funding from the government will remain consistent throughout your retirement.  Unsure about this?  Take a look at the article Will Social Security be there in the future?  For the purpose of this analysis let’s assume that it will be there.  Obviously the younger you are the more this may be a concern, older retirees most likely won’t have to worry about this.


Let’s look at the reasons for delaying your social security.

Your health is good and the prospect for longevity is good.  This of course is the most obvious reason for delaying, because if you have a long lifespan then over time you will receive more money. The breakeven age is between 82 and 83.  Every year that you live beyond this age, will be money ahead for you.  Over a long lifetime this could be very substantial since you will be receiving a higher amount of Social Security and your increases will be larger as well.

Your portfolio will most likely last longer.  If you’re relying on your portfolio to supplement your retirement income studies show that even though you will be using up more of your portfolio in the early years, when the larger Social Security checks kick in it it takes the pressure off your portfolio and allows it to grow more.  Of course a lot of variables can change this picture, such as how your portfolio is made up, stock market corrections, and how much money you have.  To figure this out you need to work with a professional that can take you through real life scenarios.

You’re still working and you don’t need it.  This is becoming more common today among retirees as many companies are lacking good talent and your skills are still valuable and you figure you might as well keep bringing in the bucks.  It makes good sense to delay because if you take your Social Security while your working it just throws you into a higher tax bracket and your Social Security is taxed as well.

Your spouse will be up a creek if you kick the bucket.  In many cases if a spouse dies the income from a pension or work will go away and they are stuck just relying on Social Security.  As we pointed out above, they will receive the higher of the two Social Security payments, not both.  By delaying your payment it will provide a much larger survivorship income for your spouse.  This can be very substantial.  Get out the calculator and figure out if the higher earner is gone what will they survivor have left in the form of survivorship pensions, life insurance and remaining assets that can be used to generate income. If it is not enough then this is one of the most important reasons to consider delaying your benefits.

You’re Trying to Reduce the Impact of Taxes from your RMD’s at age 70.  Now this can be very complicated.  If you do the math on your required minimum distribution from your IRA at age 701/2 and you find that it will be a pretty big number, and keep you in a higher tax bracket, you may want to take out money from your IRA/401k before you reach age 701/2 and pay the tax now at a lower tax bracket.  If you also have to count your social security income it can be counterproductive.  By delaying Social Security it keeps the rest of your income lower while taking money from the tax deferred accounts form your IRA’s and 401k’s.  You may want to consult with a tax advisor or a financial advisor with a good tax knowledge to help you figure it out.


Summary

So as you can see there are many factors to consider when making the decision of when to take your Social Security.  Need some help?  We are here and would love to help walk you through your own personal situation and there is no one right answer for every person.

 

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