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Timing is Everything - Social Security Planning

June 09, 2021
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For many, Social Security is core to their retirement plan.  The fixed stream of payments provided by Social Security can be a key element in helping cover expenses during retirement.  One question we hear frequently is “When should I start taking my Social Security benefits?”

This is an important question that can affect several aspects of your financial plan. The decision of when to take Social Security payments may have a noticeable impact on your cashflow and lifestyle during retirement.

Before taking into account retirement goals and specific situational factors, it is helpful to understand how time impacts your benefit. The chart below illustrates monthly benefit amounts by age.  It assumes a $1,000 monthly benefit at a Full Retirement Age (“FRA”) of 66.  Your FRA is the age at which you would receive 100% of your entitled benefit.  Note that the FRA is set by the Social Security Administration and adjusts based on your birth year.(1) 


The chart highlights the reduction in monthly benefits when drawing Social Security before your Full Retirement Age, as well as the increase in monthly benefits when delaying beyond your Full Retirement Age.(2)  Keep in mind that benefit increases end at age 70.

The decision may appear relatively simple:  estimate your life expectancy and compare the lifetime value of your benefit at different ages to understand the optimal time to start receiving payments. 

Like so many topics across the retirement landscape, additional factors may also impact your decision.  These factors might include the tax treatment of Social Security compared to IRA withdrawals, spousal benefit coordination opportunities, consideration for a surviving spouse, and Social Security’s lifetime income guarantee that exists under current law.(3)

With this myriad of dynamics at play, how can you streamline your thought process to illuminate what really matters?  To help with that, here are three questions to consider as you prioritize the most important factors when making your decision:

Do You Need the Money?

Retiring before Full Retirement Age may be a personal choice or one that is thrust upon you because of circumstances, such as declining health or job loss. If you need the income that Social Security is scheduled to provide, however reduced, then taking benefits early may be the only choice for you.

What Does Your Spouse Need?

If your spouse expects to depend on your Social Security income, the survivor benefits he or she receives after your death may be reduced substantially if you begin taking benefits early. It’s important to remember that, based on current life expectancy tables, women are likely to live longer than men.

Are You Healthy?

The primary risk in retirement is running out of money. The odds of living a long life in retirement calls for waiting until you reach full retirement age so that you receive a full benefit for as long as you live. However, if your current health is poor, then starting earlier may make sense for you.

There are several elements you should evaluate before you start claiming Social Security. By determining your priorities and other income opportunities, you may be able to better decide at what age benefits make the most sense.

If you are wondering when you should start taking Social Security payments, please give the team at Stonegate a call.  We are happy to discuss your specific situation and provide guidance to help you optimize the timing of your benefits.

(1) https://www.ssa.gov/benefits/retirement/planner/agereduction.html

(2) https://www.ssa.gov/benefits/retirement/planner/delayret.html

(3) Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced in conjunction with FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.