How to Know When to Take Social Security

These four factors will help you decide when to take Social Security.

Couple talking to a financial advisor about when they should take social security.
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For those wondering when to take Social Security retirement benefits, having the funds sooner rather than later sounds nice, but does it really work to your benefit? The answer depends on several things:

  1. Will you work between age 62 and your full retirement age?
  2. Your life expectancy
  3. Your marital status
  4. Your desire to protect your purchasing power should you live longer than you might expect

Below you can see how each of the four factors affects your personal situation, and you will find specific examples with numbers.

Earned Income Before Age 66 or 67

If you have not yet reached your full retirement age as defined by Social Security (for most people about age 66 or 67) and you are still working, it will probably not make sense to start receiving your Social Security benefits.

Why? Because if you earn over the Social Security earnings limit, your Social Security benefits will be reduced. Once you reach full retirement age your benefits will not be reduced regardless of other income you may earn (although your benefits may be taxed).

Life Expectancy

If you live to your standard life expectancy, believe it or not, you will get almost the same amount whether you take Social Security early, or wait until later to take it. To see how this works, it helps to look at an example using real numbers, such as the one below.

George is age 61 and he is deciding when to take Social Security.

Here are the numbers from his Social Security statement showing what he will get at which age:

  • Age 62: $1,643 ($19,716 per year)
  • Age 66: $2,238 ($26,856 per year)
  • Age 70: $3,009 ($36,108 per year)

A 62-year-old man has a life expectancy of nineteen years, or to age 81. Social Security has a cost of living adjustment which provides an increase in benefits over the years, but for now, we’ll disregard that. Let's look at three possibilities:

  • Assume George starts receiving benefits at 62. He gets $1,643 per month, or $19,716 per year, for 19 years. He receives a total of $374,600.
  • If he waits until age 66, he gets $2,238 per month, or $26,856 per year, for 15 years (to age 81). He receives a total of $402,870.
  • If he waits until age 70, he gets $3,009 per month, or $36,108 per year, for 11 years (to age 81). He receives a total of $397,190.

In summary:

  • $374,600 if he started benefits at age 62
  • $402,870 if he started benefits at age 66
  • $397,190 if he started benefits at age 70

Clearly, if George lives to his life expectancy, he maximizes his lifetime income by taking Social Security benefits at his full retirement age, or age 66 in his case.

When you factor in the potential increases in benefits due to the cost of living adjustment that Social Security provides, waiting longer to take Social Security looks even better.

With cost of living adjustments of 2% a year accounted for and living to life expectancy, George would expect the following total amounts.

  • $450,320 if he started benefits at age 62
  • $502,720 if he started benefits at age 66
  • $514,800 if he started benefits at age 70

If George lives to age 81, he will maximize his lifetime income by waiting until age 70 to begin taking his Social Security benefits. In George's case, his break-even age is 80, meaning if he waits until age 70 to begin benefits, he must live to at least age 80 to receive the same total dollars he would have received if he started taking benefits earlier.

There are a lot of dollars at stake, and of course, no one knows their life expectancy with certainty. However certain health and lifestyle factors will affect your own personal life expectancy. Just as an insurance company would do underwriting, I would suggest you do an analysis on your own personal life expectancy, using a life expectancy calculator that will ask you health and lifestyle-related questions.

Marital Status

For singles, life expectancy is one of the primary factors to consider. A break-even analysis based on how long you live can be a good starting place for the Social Security decision for singles. Taxes should be considered also. Believe it or not, for some folks delaying the start of Social Security and drawing out of retirement accounts earlier may provide some extra tax benefits.

For married couples Social Security it is not as simple. The way Social Security survivor benefits work, when you are married, upon the death of the first spouse, the surviving spouse can keep the larger of either their own benefit or their spouse's benefit. Because of this, there are ways for couples to coordinate how and when they each take benefits so they can get more as a couple.

Desire to Protect Purchasing Power

Most people want to collect their Social Security benefits as soon as they are eligible, which is at 62. They make this decision without understanding the long term consequences. If you should live well into your 80's, you are giving up anywhere from $50,000 to $150,000 in additional income by making a hasty decision about collecting your Social Security benefits.

Social Security benefits have a cost-of-living adjustment built into them, which means your Social Security income will increase with inflation. Making the most of your Social Security benefits by delaying your start date can offer you a tremendous amount of income protection later in life.